High Yield Canadian Oil Equities: Recent Performance And Yield Review

 |  Includes: BTE, ERF, PBA, PGH, PWE
by: Zvi Bar

Many individual investors that fear inflationary devaluation to the U.S. dollar are considering positions in currencies that are more strongly tied to real assets. Such currencies include Australian, Swiss, Norwegian and Canadian currencies, among others.

Basic materials and other natural resources back the currencies of these above-mentioned nations. Commodity based investments valued in a nation where the currency is also backed by natural resources could present a way for a portfolio to hedge any U.S. currency re-valuation as well as some commodity price appreciation. When these commodities are weak, investments may have leveraged downside risk when calculated back into dollars.

Many believe oil and gas are presently good U.S. currency hedges and general investments. Oil prices recently fell about twenty percent, and gas prices have been depressed for a couple of years. Oil prices may go lower, but potential further instability within oil producing nations could cramp supply. Given the heightened risk to supply, price depreciation will likely be limited provided global oil demand continues to grow.

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. 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. Four of these companies pay their above-average dividends on a monthly. I have also included their 2011-to-date and 1-month performances.

Baytex Energy Corp. (NYSE:BTE)

  • Yield: 5.1%
  • Dividend frequency: Monthly
  • 2011-to-date performance: 3.64%
  • 1-month Performance: -3.18%

Enerplus Corporation (NYSE:ERF)

  • Yield: 7.8%
  • Dividend frequency: Monthly
  • 2011-to-date performance: -8.36%
  • 1-month Performance: 5.45%

Pengrowth Energy Corporation (NYSE:PGH)

  • Yield: 7.8%
  • Dividend frequency: Monthly
  • 2011-to-date performance: -14.92%
  • 1-month Performance: 1.01%

Provident Energy Ltd. (PVX)

  • Yield: 6.5%
  • Dividend frequency: Monthly
  • 2011-to-date performance: 5.41%
  • 1-month Performance: 7.99%

Penn West Petroleum Ltd. (NYSE:PWE)

  • Yield: 6.2%
  • Dividend frequency: Quarterly
  • 2011-to-date performance: -25.5%
  • 1-month Performance: -8.9%

Over the last 2 weeks, most of these Canadian oil & gas companies have traded up and down with the broader market. The 2-week chart, below, shows that Penn West has underperformed its peers and the broader market recently.
Click to enlarge
(Click to enlarge)

Penn West is likely underperforming due to expected operational weakness following the impact of wildfires in Alberta and flooding in Saskatchewan and Manitoba. In May, Penn West announced that approximately 35,000 boe per day of production was interrupted by these events. While the other companies announce and pay dividends monthly, Penn West is on a quarterly system and fear of a pending dividend cut may also be weighing on the shares this quarter.

Most of these companies have not adjusted their dividends since oil was previously at around $80. Most did not raise their dividends as has appreciated another 25% and it appears likely that they will not lower their dividends so long as oil stays above $80, provided their production is not hindered.

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.

Disclosure: I am long PGH.