Prescient

Oil: The Price Is Right

No kidding!!!


On Jun 05 11:11 AM Leul wrote:

> A prediction with a 30$ price variance (I wouldn't be surprised
> to see oil pull back some to something like $50, if none of the "bad
> stuff" happens, nor would I be stunned to see oil continue as high
> as $80/bbl)
>
> Hmm.. seems to me the writer is saying that he has no clue

High-Yield Canadian Royalty Trusts vs. Dividend Growth Stocks

I appreciate the insight given by all.

The ALPHA writer is correct in recommending that retires not spend more than 4% of their portfolio or to assume CANROYS will always payout at present or historical rates. However when it comes to evaluating them as "investments", he seems to drive with a rear view mirror -- he says that Canroys are hares and MCD, PEP, JNJ are tortoises and therefore better investments because they have not been beaten down. What's there to to prevent them from get beaten down in the FUTURE? Is he recommending a Buy high Sell low philosophy? Many Corporations doctor their books to smooth out their profit/dividend growth and to hide their fundamental performance from investors. IBM did it for years in the 90s b4 it crashed. Overpaid and overrated Wall Street stiffs thought it had to do with a year or two of bad management. Not!

Dividend Growth Investor mentions how the tax law changes will affect payouts -- very useful information indeed. But even with those changes, the dividend is still very, very good. As a matter of fact, the low stock prices ALREADY reflect the tax law impact. What makes the CANROYS good or bad investments , is the projection of whether oil prices will stay where it is, or whether it will go up. I do not have a crystal ball on oil prices, but if oil goes up, stock prices will certainly go up in tandem. So will dividends. Whether the CANROYS become corporations or not has no bearing on whether they make good investments. If they convert, they would just plow more of their profits back and grow their business. Their payout will be less, but their stock prices will increase, as their NAV increase.

Where Is Penn West Energy Trust Going?

Nice article, but Penn West is LEASING the office space, not buying it. Right? Seems to me that doesn't qualify them as having "taken a major leap into real estate"!

Besides, the article seems to attribute the share price drop as due to "rational" selloff as opposed to investor paniic or short covering. If rational selling were the case, what NEW announcement on the day the of selloff can we attribute the price drop to?

Seems to me even if PWE is to reduce dividends due to further drop of oil price, we would still get 16% instead of 30+%. A SUSTAINED drop (years, not months) of oil price below production cost is highly unlikely. The more important question is which companies are left standing when the market recovers. With the weaker ones gone, the stronger ones will have more pricing power.

Going for High Yield Stocks

Tim,

Your stocks high dividends are worth mentioning ONLY if they are sustainable. An analysis of why some stocks have more sustainable yields is far more interesting than a listing of high yields --- something I can get out of a investment database.

For example, you mentioned that PWE "has been problematic because even though it is maintaining its payout level, the distributions are in Canadian currency and the results have declined over 20% when converted to U.S. dollars.". What you missed is that PWE revenues are in USD, and the decline actually helped INCREASE their recognized revenues in Canadian dollars. Given the low oil prices, this has given PWE the ability to sustain their payout while maintaining a conservative payout ratio.

macsmart has a more interesting comment --- He says that AOD is not leveraged and buying back their shares. That kind of information is valuable to investors interested in capital preservation.

5 Energy Stocks with Low Long-Term Risk

Dubious,

Sure the Canroys have been beaten down, but before you start putting your money under your mattress, or listen to doom and gloom gurus, here are some common sense things to consider:

1. If there is a consolidation, as some people believe, the weaker Canroys may go under or be bought out. But the stronger Canroys that survive will come back with more market share than before. The entire oil market is not going away unless we all give up driving, or stop heating our homes in the winter.

2.Look for the stronger Canroys are selling at a fraction of their NAV. Canroys that are so cheap they are buying back their own shares. Look for companies where CEO's are buying back shares on the open market (not just exercising their options).

3. Look for Canroys with a conservative payout ratios below 60%.

4. Look for Canroys with over 10 year reserve life.

5. Look for Canroys with at least 3 years of tax pool credits so that they will not have to pay corporate taxes even after 2011.

6. Look for the low cost producers -- ones that have shallow wells , and do not have to resort to horizontal drilling and other expensive techniques. These companies will likely survive in the low price environment, whereas the one that are based on a high oil price business model will not.

7. A companies that hedges part of their production is more likely to maintain the dividend in spite of temporary low prices.

8. Look for low Debt to Cash Flow ratio.

8. After finding a few Canroys that fit all these requirements, then pick only the ones that are paying a sustainable 20% dividend.

I own shares in two companies that fit all these requirements. I continued buying more as their stock prices came down. With a little research, you can find them too.





On Nov 10 03:48 PM dubious wrote:

> ....... he also ignores altogether the exodus from CanRoys to occur
> with the new Can tax law going into effect...........

5 Energy Stocks with Low Long-Term Risk

Hmmmm.... another self imagined genius who can't even read.


On Nov 10 01:06 PM bill d wrote:

> AH - I see - another wait until oil goes up, then wait for stocks
> to go up, then jump in. buy high, hold or sell low. Sherlock spent
> most of his life on another planet, too.

5 Energy Stocks with Low Long-Term Risk

I agree with GEOREALIST that Kurt Wulff's article provides no useful analysis, and stupid advice. Buying oil sands (COSWK.PK) makes ABSOLUTELY NO SENSE right now because the price of oil needs to be much higher than it is now to justify the high costs of extracting. In comparison, PWE has mostly conventional oil wells, where costs of extracting is lower.

PWE also has 50% in natural gas. Where price of oil has fallen by nearly 50%, the price of natural gas has held up. The reason is simple. People can combine trips to the supermarket with other errands, and they can cut out their Sunday afternoon drives, but they will not lower their thermostats by more than a few degrees, or take fewer showers.

Elementary, Watson...... ahem .... Wulff.

How Does the Financial Crisis Affect the Peak Oil Thesis?

Does anybody believe that the Fed printing $840B will have no long term effect on commodity prices including oil prices?