Performance Review: 6 High-Yield, U.S.-Traded Canadian Oil And Gas Stocks

Includes: BTE, CVE, ENB, ERF, OBE, PGH
by: Zvi Bar

Canada supplies more oil and gas to the United States than any other foreign nation. Canada is also one of the closest allies that the U.S. has, including sharing a large and relatively friendly border.

Many Canadian petroleum companies trading in the U.S. provide above-average dividends compared to the broader market, often comparable to MLPs. Additionally, Canadian companies generally pay their dividends in Canadian dollars, which are then converted into U.S. dollars for U.S. holders.

The Canadian dollar is primarily natural resource-backed. In 2011, the Canadian dollar fell against the U.S. dollar, but from its recent high which it is still somewhat near. The Canadian dollar largely follows the price of gold, oil and other natural resources abundant in Canada. Because of this, the future of the currency will likely follow the price strength of the resources Canada has.

Below is a recent performance table for seven high yield Canadian oil and gas equities that trade within the United States (listed in alphabetical order): Baytex Energy Corp. (BTE), Cenovus Energy Inc. (CVE), Enbridge Inc. (ENB), Enerplus Corporation (ERF), Pengrowth Energy Corporation (PGH) and Penn West Petroleum Ltd. (PWE). I have included their one-month, 2012-to-date and 1-year equity performance rates, as well as their current yields.

Click to enlarge.

Of the above-listed equities, the best performing is ENB, followed by CVE. Nonetheless, most of these equities are down so far this year, and the six companies averaged a loss of 5.68 percent so far this year. Generally, the higher yielding equities of those listed have underperformed the lower yielding equities.

Recently there has been weakness across the board, as oil prices have stalled and begun to decline. On Wednesday, April 4, 2012, the Guggengeim Canadian Energy ETF (ENY), which includes these equities and many others, lost 3.75 percent. See a recent performance chart for ENY:

Natural gas prices have generally trended lower for several years, with new technology increasing gas supplies far faster than demand growth for gas. Most Canadian oil and gas equities followed oil and gas price fluctuations, and haven't changed their dividend policies in several quarters. Continuing commodity weakness could require some dividend reductions, as may any growth initiatives that would require the capital.

Most Canadian oil and gas companies were Royalty Trusts ("CanRoys") before changes in Canadian law eliminated them. These trusts were similar to U.S. MLPs in that they avoided corporate taxation by passing most of their income to shareholders. After Canada eliminated these trusts, most converted into corporations. Some may need to further restructure themselves or reduce their dividends in the coming quarters, as many have tax credits that will eventually expire.

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.