Canadian High Yield Oil And Gas May Provide Income And U.S. Dollar Protection

Includes: BTE, ERF, PBA, PGH, PWE
by: Zvi Bar
Individuals fearing inflationary devaluation to the U.S. dollar may be considering 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.
Many believe oil and gas are also presently good US currency hedges and general investments, even though oil has recently fallen about 20% and gas prices have been depressed for a couple of years. The reasons some believe these energy commodities might increase in price vary, and include inflation, supply shortages and growing global demand for petroleum energy.
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 4%, 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 1-month performances.
Baytex Energy Corp. (NYSE:BTE)
  • Yield: 4.8%
  • Dividend frequency: Monthly
  • 2011-to-date performance: 0.88%
  • 1-month Performance: -18.67%
Enerplus Corporation (NYSE:ERF)
  • Yield: 7.4%
  • Dividend frequency: Monthly
  • 2011-to-date performance: -11.86%
  • 1-month Performance: -13.91%
Pengrowth Energy Corporation (NYSE:PGH)
  • Yield: 7.8%
  • Dividend frequency: Monthly
  • 2011-to-date performance: -17.03%
  • 1-month Performance: -19.41%
Provident Energy Ltd. (PVX)
  • Yield: 6.5%
  • Dividend frequency: Monthly
  • 2011-to-date performance: -0.63%
  • 1-month Performance: -11.89%
Penn West Petroleum Ltd. (NYSE:PWE)
  • Yield: 5.6%
  • Dividend frequency: Quarterly
  • 2011-to-date performance: -25.75%
  • 1-month Performance: -22.41%
All five of these companies are down between 11 and 23 percent within the past month. Additionally, only one, BTE, is positive so far within 2011. See the 1-month chart, below - (click to enlarge): 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 high yield Canadian oil & gas companies appear capable of maintaining their payouts due to tax deductions that they carried forward, plus through the sale of oil and/or other assets, such as unexploited land. Several seem capable of maintaining present payout rates so long as oil stays above $80. Should oil continue to go down in price and settle in a range below $80 then it is possible that some of these yields will also come down.
Disclosure: I am long PGH.
Disclaimer: This article is intended to be informative and should not be construed as personalized advice as it does not take into account your specific situation or objectives.