The US and Canadian natural gas and oil trusts have had a magnificent run up of 30-50% in price over the past six to twelve months while paying about 8% dividends annually in monthly installments. I have had Mesa Royalty (MTR), Hugoton Royalty (HGT), Cross Timbers Royalty (CTR), San Juan Royalty (SJT) and Canadian Oil Sands (COSWF/COS.UN-TO) for a wonderful ride. I recently sold MTR on a gap up, and have been thinking I ought to take profits on some of the rest. These were being held in my tax-deferred accounts where capital gain and income are not taxed until withdrawn some day, and where the intricacies of tax law, such as depreciation or depletion, type of dividend, etc. need not be an immediate nor a continuing concern.
I have felt that these stocks were due for a correction by themselves after such a run, but also because of the tremendous run up in commodities generally and the possibility, widely believed, that a recession was due. I'd hate to give it all back. Nevertheless I'd hate to give up those nice increasing dividends in the retirement funds. Of course if natural gas and crude oil prices were to fall, the dividends would fall as well. I took a long look at US and global utilities for replacement yield, and there are a few utes with decent yields abroad. I happen to live in Arizona where regulators have been very restrictive with rate increase for utilities, despite their enormous cost increases for peak load purchased power and just normal operating costs. I have heard that New York State and Maryland have been even worse with their own captive utilities. So the easy period for regulated utilities in the US may be past. With US democrat party majorities looming seemingly everywhere for 2009, utilities may have seen their best days. It may be time when the regulators let the utilities run down, even though we'll need a lot more power, and much cleaner, going forward. A run down utility faces higher interest rates and has less capital, or incentive, to upgrade, but politics is politics. Then too, utility dividend rates aren't all that great now anyway. The Vanguard Utility Index Fund pays just about 3.5%. Scratch retail utilities.
There is another class of utilities in the US which is regulated at the federal level instead of at the state level, and it does not bill retail tax payers monthly like the local electric utility does. Therefore it doesn't have quite the same pressure from politicians to keep rates (electric, gas, and water rates) down at all "cost". I am talking about the energy delivery utilities, also known as gatherers, pipelines, and shippers. Most crude oil, natural and LPG gas (eventually, we hope), and distilled products (gasoline, diesel fuel, heating oil, jet fuel, ethanol) are transported by pipelines from major producing areas to major user areas.
