High Yield Canadian Oil & Gas Equities May Provide Currency Protection and Income

Includes: BTE, ERF, PBA, PGH, PWE
by: Zvi Bar
Many believe oil and gas are presently a good US currency hedge and general investment, even though oil has recently fallen about 20%. The reasons some believe these energy commodities will increase in price vary, and include inflation, supply shortages and growing global demand for petroleum energy. One popular commodity choice continues to be petroleum -- primarily in oil form, but also in natural gas.
Individuals fearing inflationary devaluation to the U.S. dollar have also considered positions in currencies that are more strongly tied to real assets. Such currencies include Australian, Swiss and Canadian currencies, among others. Natural resource investments valued in a nation where the currency is also backed by natural resources could present a way for a portfolio to protect itself from currency re-valuation as well as commodity price appreciation. Of course, that also means two things can go wrong.
Canada is the largest foreign supplier of energy to the United States. Canadian-based companies pay their dividends in Canadian currency. If U.S. dollars go down in value relative to Canadian dollars, American investors will notice the dividend increase even if it stays the same.
The following is a list of five Canadian oil and gas equities that currently yield over 5%, listed in alphabetical order. They are all mid-cap companies (valued between $2-10 billion). Another point of note is that four of these companies pay their dividends on a monthly basis, which is appreciated by those who need consistently flowing income. I have also included their 2011-to-date and one-year performances.
Baytex Energy Corp. (NYSE:BTE)
Yield: 5.04%
Dividend frequency: Monthly
2011-to-date performance: -1.56%
One-year Performance: +39.11%
Enerplus Corporation (NYSE:ERF)
Yield: 8.44%
Dividend frequency: Monthly
2011-to-date performance: -12.08%
One-year performance: +17.10
Pengrowth Energy Corporation (NYSE:PGH)
Yield: 8.13%
Dividend frequency: Monthly
2011-to-date performance: -17.57%
One-year performance: +8.50%
Provident Energy Ltd. (PVX)
Yield: 7.26%
Dividend frequency: Monthly
2011-to-date performance: -4.65%
One-year performance: +13.47%
Penn West Petroleum Ltd. (NYSE:PWE)
Yield: 5.63%
Dividend frequency: Quarterly
2011-to-date performance: -21.07%
One-year performance: -4.41%
All five of these companies are down between four and 21 percent within 2011. Nonetheless, four out of the five are up over the last year, with three up double digits.
One thing to note is that these companies were formerly Canadian Royalty Trusts (CanRoys). These trusts were similar in design to U.S. MLPs, in that they avoided corporate taxes by passing most of their income to their shareholders. Canada has eliminated these trusts, and most of them have since converted into corporations. Nonetheless, some of these companies continue to pay out high yields.
Many can continue the payouts because they still have losses that they carried forward, while others may be making enough money through the sale of oil and/or other assets. Several seem capable of maintaining present payout rates so long as oil stays above $80, which seemed like a likely occurrence until quite recently. If oil should continue to go down in price, it is possible that some of these high yields may come down.
Disclosure: I am long PGH.

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