Four High-Yielding Canadian Oil Income Trusts

With the price of oil reaching almost $150 per barrel, and the oil stocks having a selloff in the last few days, investors are looking for ways to invest in oil but receive a high income in return. One investment that meets these objectives are the Canadian Income Trusts, also known as Canadian Oil Income Trusts or Canadian Royalty Trusts. They pass through all their earnings from their oil and gas wells to the trust holders, similar to real estate investment trusts. There is no taxation at the corporate level since they are structured as trusts plus, and a portion of the dividends may be non-taxable due to depletion and depreciation write-offs.

However, there are a couple of negative issues you should be aware of:

• The Canadian government came out with a plan to tax all Canadian trusts at the corporate level beginning in the year 2011.
• The Canadian royalty trusts should never be put into a retirement plan due to the withholding tax issue.

Below is a selection of some of the Canadian income trusts that trade on U.S. stock exchanges:

• Harvest Energy (HTE) is a Calgary, Canada company that has paid monthly dividends since July 2005. The company has operations in Alberta, Newfoundland and Labrador. It pays a yield of 16.2%.
• Pengrowth Energy (PGH) has been paying dividends since July 2004. Its reserves include about 320,000 thousands of barrels of oil equivalent. The stock has a P/E of 12, and has a yield of 14.4%.
• Provident Energy Trust (PVX), another Calgary, Alberta based company, has been paying monthly dividends since October 2002. The company has operations in Alberta, Saskatchewan, California, Wyoming, Texas, Florida, and Michigan. The stock has a P/E of 128, and has a yield of 13.5%.
• Advantage Energy Income (AAV) has paid dividends since April 2004. The company has operations in Alberta, British Columbia, Saskatchewan, and Manitoba. The stock has a yield of 12.4%.

To get an Excel list of all the U.S.-traded Canadian Oil Income Trusts, which you can download, change, and sort, go to WallStreetNewsNetwork.com.

Disclosure: Author does not own any of the above.

 

Comments

[NOWHEREMAN:]

I own PWE. Only because it ate two companies I owned.
PetroFund and Canetic. I hate it with a passion because I dislike Managements' idea on what Disclosure means.

So, what do you think of PWE and what about PGH"s Tax reporting structure which seems to get more onerous every year.

AAV's Hedges look like they will come back to haunt them for some time, any thoughts.

2008 Jul 10 09:20 AM

[casey00001:]

Your comments about not putting Canroys in an IRA account are just plain wrong. If I can get net 13% return (after Canandian 15% withholding) and reinvest those dividends in excess of the $5,000.00 IRS limit, why wouldn't I do it? Plus the dividends compound monthly.

2008 Jul 10 09:30 AM

[svkoho:]

I guess I just don't get the proviso to avoid putting trusts in your IRA. Ive done it for many years. So you give 15% of the yield to Canada. so what! With yields like that, who cares. Am I missing something?

2008 Jul 10 10:20 AM

[NOWHEREMAN:]

Doesn't matter if they are Taxed as ordinary income either, I started with PetroFund before the tax rate was reduced to 15% because I couldn't find an Investment yield which was comparable anywhere.

2008 Jul 10 10:40 AM

[notsosmart:]

im ok with aav

2008 Jul 10 11:01 AM

[Torrey:]

About Canadian income trusts (and all other stocks)...It pays to seek advice and do research on these trusts by using Canadian advisor websites. For a quick overview of what Canadian analysts think of a particular company, this website is a good one to start. Stocks listed alphabetically.

www.stockchase.com/Com...

I've put up what they have to say about Advantage Energy. As you'll see it's one of the least liked in the bunch.

2008 Jul 10 11:10 AM

[Logan Flatt:]

I was fortunate to have purchased a large chunk of Canadian Oil Sands Trust (COSWF) back in 2004 thanks to the great oil and gas research that Kurt Wulff, CFA puts out at his website at mcdep.com. My fund still holds it today and has done very well as a result. Kudos to Kurt.

2008 Jul 10 11:18 PM

[Scared Stiff:]

I also question the "don't put it canroys in a Roth IRA" screed. Why is it better to pay 15% income tax + any CG than 15% foreign tax?

2008 Jul 11 07:35 AM

[Steven Ward:]

High oil and somewhat higher gas prices are bailing alot of Canroys out of a difficult decision as to float more shares or to borrow more for production increases or to at least maintain production.

Most Canroy's have over-hedged and will not enjoy the full benefit of these prices.

According to Penn West Annual Report, US investors can expect an additional Canadian with holding of up to 23 percent starting in 2011.
Also, Mr. Kurt Wulff jas dropped the NAV of PWE by 11 to 12 percent due to the higher Alberta Royalty Tax. You can only wonder what other Canroys Mr. wulff doesn't cover will have the same done to them. So much for PWE poo pooing the higher tax as not significant.

2008 Jul 11 09:57 AM

[Ames Tiedeman:]

Buy them and hold them and sleep well at night!

2008 Jul 11 04:30 PM

[Ames Tiedeman:]

The yields are getting even better with this oil pullback. Time to buy is soon.

2008 Jul 18 07:39 AM

[Ames Tiedeman:]

This pullback in oil is a gift in regards to dividend yield for HTE, PGH, PWE, AAV, PVX. The five (5) "black gold" horsemen. Their shares have declined, pushing their yields up. Extremely attractive here.

2008 Jul 19 01:15 PM

[sltd:]

I own PGH HTE and PWE in a ROTH IRA. The Canadian Gov. withholds 15% of the monthly dividends and the rest I keep. If these stocks were held outside of a ROTH the Canadian Gov. would still withhold 15% and I would have to pay income taxes to the U.S. Gov. as well. A ROTH IRA is a good way to avoid taxes.

2008 Jul 29 07:36 PM