smurphny

Ten Top Value Traps with Unreasonably High Dividends

Selling got overdone on many of the oil/gas trusts. At current prices, even with expectation that distribution will fluctuate, these represent good values. Crude is also nearer bottom than top. Crude at 10=depression and even cash will not be safe unless it's in gold under your bed. Barring this nightmare scenario , it's probably time to start adding these before they DO get to a point of higher risk. The "trap" may be in waiting until too late because when the general market turns up, which will precede the recovery, the value of these will soar.

Where Is Penn West Energy Trust Going?

Caveat Emptor for damned sure. The very existence of the Canadian oil trusts is questionable at $20 crude which is a VERY real possibility. There may be no money to distribute and no way for the more heavily financed trusts to pay their note holders when crude becomes priced less than the cost to extract it. U.S. oil and gas trusts, with no debt are better energy bets right now because they will at least avoid bankruptcy while supplying a necessary commodity at reduced levels. Some of the CANROYS will probably be ok because they have small amounts of debt but others like HTE may be in trouble should the likely scenario of a depression continue to unfold. Averaging down to a final price of 0 IS NOT a good idea. "Cheap" at $5 does not look like cheap when it falls to $2.50 and the distribution is little help. Trade these things right now without regard for distributions because getting fixated on them can cost you much more than you will ever make back in distributions.

Canadian Royalty Trusts Will Never Return to Their Former Glory

One thing that needs to be mentioned is the future of the dollar/loonie ratio. When the billions of fresh new US dollars start to chase a dwindling supply of oil (and other commodities), the value of oil in US dollars will likely skyrocket. The impending inflation debacle should make owning oil in the ground a safe place even with reduced distributions. These companies are just that : companies with loyal employees and management who want to maintain their businesses, unlike their US counterparts which are entirely different paper entities with no real corporate identity or spirit. I am looking forward to them converting to corp. status. ** The coming US search for tax dollars from "the wealthy," (right!) by a populist, liberal Congress DOES worry me.**

How Does the Financial Crisis Affect the Peak Oil Thesis?

Concerning the CANROYs, I have been a long term holder and have averaged down during the debacle of late, believing that fear and forced selling was creating some great bargains. No matter what the economy does, cars will run, lights will be on, houses and schools will need heat. Even if oil has a protracted collapse to $50 and we get a cut in dividend, which is a more complicated equation than I can figure, the distributions should still provide a margin of safety. If they stay at the present crazy 30+%, it will not take long to own these shares, going into 2011, essentially for free. Oil is being depleted, costs of extraction are increasing, demand is increasing around the globe. There may be short term downdrafts in crude prices but long term, the price of oil has nowhere to go but up and owning some of it in the ground is probably a good idea. Also, the US dollar is on the hook for a lot and will likely decline against other currencies. Oil will give some protection from the resultant inflation.

Can the Dow and S&P Last 15 Rounds?

Those high dividend rates look tempting but there is also considerable danger. I have traded these things for years. First of all, the stock value WILL float up and down with the tide which is most certainly going out. There is little evidence that the dividend rate will positively affect the stock price.

Second, in this extremely volatile and fickle commodities market, it is impossible to count on the dividend rate staying high. The dividends will fluctuate along with the price of crude. When dividend cuts occur, as they must, investors will run like lemmings off the cliff and drastically cut the share price.

Third, no one knows what will happen as we get closer to the Can. tax gouge that is scheduled for 2011. It is impossible to tell when investors will start pulling out (if this is not already happening).

There are many uncertainties and it makes no sense to get a hefty dividend if it is all lost in share prices. Maybe when this very erratic and confused market stabilizes it will be possible to trust the trusts will provide a decent overall return. There is an old and mostly forgotten investing principle which still holds true for high yields like these: RISK=REWARD.