OJO Zafado

High-Yield Canadian Royalty Trusts: What's the Catch?

Guy
Warren Buffet thinking is how I ended up buying Acadian Timber the day after the Halloween massacre for less than US $8. There is no magic in yield when an asset class is beaten down. The trusts that participate get beaten down too, to a point. The thing with natural resource trusts is that they still have the resource even in a down market. Look what happened with Grand Cache Coal. Not a trust but some drastically undervalued resources! I do not think the other forestry trusts like CFX and TWF are in much danger of cratering. TWF is a weak one alright but now they are evolving into real estate development. Trees continue to grow larger while harvests are reduced. The assets become more valuable even as the price of the trusts decline. After making it's lows CFX has been standing like Stonewall and his Virginians at +/-$11.50. The dividend has been cut from 16 cents to 12 cents and still there is a 12% return there. Within 18 months of the closing ceremonies in Bejing the 2010 Vancouver Winter Olympic games will kick off . I think there will be enough of a mini boom to support both of those BC based trusts. In the natural resource arena there will always be a demand for ever more computer and toilet paper even if the newsprint business is falling off. The advent of OSB and now wood pellets for home heating means there is an evolution going on in forestry products that should bring "waste by product" down to near zero. The globalization of the world still relys on the lowly wooden shipping pallet as it's foundation. Now we see Atlantic Power falling victim to the utility weakness and high fuel costs. ATP may be a great buying opportunity at this price. As a stapled unit it is particularly advantageous for tax sheltered accounts for US holders. These seem not to be as dangerous for their 10-12% yields as say the recently issued C-PrM, which is just dropping like a rock while yielding over 9%. Your observation on oil prices is correct. Yet there seems little likely hood that oil will collapse. The world's largest economy is just a dead duck with an impending currency crisis. On average more than $50 billion US dollar equivalents are invested from abroad every month in the US. The trade deficits are rising as well as the national debt and current account deficits. When this money drys up or diminishes significantly it will be the intrinsic value natural resource assets that will hold up. If they pay dividends in foreign currencies they will fare even better. There were the tax stimulus rebates, and then the Bear Stearns bailout. Now the US economic policy makers are sitting back in Shock and Awe, as the world markets are correctly perceiving that as far as the US dollar and economy go, the genie is out of the bottle. This has not stopped me from lightening up just a little in BTE! Another Canroy trust "fund" that I find interesting is KYE. In addition to Canroys they own a whole diverse group of MLPs as well as US energy trusts. The +7% dividend is pretty solid. I appreciate your input and opinion on Risk=Reward. Still even in the Halloween massacre very very few lost "everything". Owning Canroys can have a lot of risks in terms of currency, weather, economic conditions, uncertain tax policy, backwardation and contango, etc. I would not be buying the Swiss Water Decaffeinated Coffee Income Fund any time soon. But an ice maker like the Arctic Glacier Income Fund may be good bet on a long hot summer with the thermostats on those air conditioners getting turned up? If Zimbabwe is the model for the future of South Africa then all things natural resource related in either Canada, Austrailia, Brazil or Russia will be going to higher intrinsic valuations in the medium term.

High-Yield Canadian Royalty Trusts: What's the Catch?

Pilot Gee, Eh?
Your XTR post is quite interesting. As near as I can tell it pays divs out quarterly rather than monthly. Is that correct? Your observation that it has done quite well as of late is true, looking at a chart. The problem I find is that doing the math with data I am able to conjure up from online resources, the dividend yield now seems to have dropped below 7%. A nice pop in the price seems to have resulted in a lower current payout on the % basis. This ETF trades very thinly on the US Pinks as ISHAF . I had a nice gain in ENY a US sponsered ETF that invested in Canadian oil sands and O&G trusts on some rotational basis tied to the price of crude. It paid no dividend at all but for it's Dec distribution. I have owned the EIT.UN or EVDVF if you will for some time. It seems to me it is basically the same product as XTR, with a fund manager doing the Cherry picking. The yield is significantly higher it appears than that of XTR/ISHAF and is paid monthly. While not steady in price it seems to present buying opportunities below the $5.90 level quite often while swinging occasionally into the +$6.15 range. The yield in this price range has consistently been 12-14%. That's net 12% even for US residents, even those who hold it in a tax sheltered account and lose the Foreign tax credit. As far as cherry picking goes I am up 40% in ATBUF Acadian Timber trust. We did a little better in selling 4 partial positions of FDG Fording Coal into it's recent ramp to the sky. While I own all the trusts mentioned by the author, with the Exception of ERF, I am considering a new position in it as they have now sold the dragging oil sands business. I had previously owned it a couple of times and done reasonably well with it as well. I have recently added to PVX and PGH on dips. One point no one blogging here seems to have touched on is how the 2011 tax change will actually benefit US unit holders of CanRoy Trusts in tax sheltered accounts, under the current tax treaty. There are always the unintended consequences of these things. It could be that there will be a rush by US financial planners to put their tax sheltered clients into these trust units on the very eve of the much gloom and doom advent of the new taxable structures of these Trusts. There will be the tax pools sustaining pay outs and the entire distribution will be relieved of the 15% US with holding.