Oil Price Helps Trusts Sustain Current Rate of Distribution

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Includes: COSWF, ENP, OBE, PBT
by: Kurt Wulff

Just as income stocks are resisting market decline relatively more, oil the commodity is also doing better than stocks in general when measured by current price to 200-day average. Both features are combined in buy-recommended Canadian Oil Sands Trust (OTCQX:COSWF), which announced on July 29 a 25% distribution increase for the current quarter over the previous quarter.

Encore Energy Partners (NYSE:ENP) and Permian Basin Royalty Trust (NYSE:PBT) also have estimated distribution yields around 12% a year that are responsive to oil price. The three conventional production Canadian Income Trusts are more concentrated on oil as well. Those trusts, including buy-recommended Penn West Energy Trust (PWE), have hedged away some of the gains in oil price and are applying the rest to reinvestment. The blessings of today’s oil price make it more likely that the conventional trusts will be able to sustain the current rate of distribution in their corporate form when taxation of Canadian trusts increases in 2011. Trusts with high concentration on oil are those with low concentration on natural gas.

Originally published on August 1, 2008.