Canadian Oil Royalty Trusts, Oil and High Yield Plays (PVX, AAV, PGH)

By: Sentiment Beat Tuesday, February 24, 2009 5:14 PM

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If you think the price of oil is heading back up like I do, but you want high income for protection, you should take a look at Canadian Oil Royalty Trusts (PVX, AAV & PGH). Oil has spent most of February trading between $35 and $40 dollars a barrel, but I can make a case for $50 oil by the summer. Oil has come down dramatically from the highs due to the recession/ depression in the U.S and global slow down, the end of China’s oil subsidy program and rising oil inventories. When the general stock market makes a temporary turn to higher levels so will oil, and its rise will out pace the general stock market. So buying Canadian Oil Income Trusts is a way to play oils next move higher, while taking advantage of the income the trusts provide.

These Canadian Income Trusts, also known as Canadian Oil Income Trusts or Canadian Royalty Trusts pay a very high income. The trusts pass through all their earnings and deductions from oil and gas wells to the trust holders, similar to real estate investment trusts. There is no taxation at the corporate level since they are structured as trusts. Also, a portion of the dividends may be non-taxable due to depletion and depreciation deductions. You should be aware that the Canadian government came out with a plan to tax all Canadian trusts at the corporate level beginning in the year 2011. However, the average yield from Canadian trusts is still higher than the U.S. royalty trusts. Below is a list of some of the Canadian Royalty Trusts that are traded on United States stock exchanges. Some of these have extremely high yields which may not be sustainable, but even if they are cut to a third, the yields would still be high.

Pengrowth Energy (PGH) has been paying dividends since July 2004. The stock has a P/E of 7, with a yield of 25.3%. PGH is currently trading at $5.50 near its 52 week low.

Provident Energy Trust (PVX), has been paying monthly dividends since October 2002, has a PE of 4 and pays a yield of 16.2%. PVX is currently trading at $2.95 near its 52 week low.

Advantage Energy Income (AAV), has paid dividends since April 2004. The stock has a PE of 4 and a yield of 33.5%. AAV is currently trading at $2.20 near its 52 week low.

stock chart

Note: I currently do not own PGH, PVX or AAV, but I do own the ETF OIL.

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2/25/2009 12:56:00 PM by dc Advantage Energy Income (AAV), cut its monthly distribution to $0.04 and is currently yielding half of what you have stated. Furthermore these yields are contingent on the trusts maintaining their distributions which at these oil prices is highly unlikely as you have mentioned, however, the capital loss you will incur after a distribution cut announcement drops the stock price will more than offset any distribution yield. Good luck. Reply Rating: (21) (2)
3/2/2009 5:13:22 PM by RJ Of course I'm concerned with PVX; it's closing in on its lowest price ever. But it just doesn't make any sense to sell in this market. Hopefully others out there will agree with me. Reply Rating: (7) (0)
3/3/2009 12:06:07 PM US investor by RJ This is a time to buy the security. Accumulate the stock in preparation for the next growth cycle which will come on the heals of bank reconfiguration. The question is how long is it going to take? I noted there currently is no real melt down in India which has a 1 trillion USD per year economy and now also has the worlds largest refinery. If you want to engage in hemispheric protectionism then buy stock in the Canadian oil trusts. A strong supply line means fundamental strength (also known as growth factors). Invest in our own resources, keep jobs here. Reply Rating: (7) (2)

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The above story is the opinion of the author only and it does not reflect iStockAnalyst opinion. Further, the author is not personally advising you regarding the suitability of the story for your investment needs. In no event iStockAnalyst will be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from or arising out of, or in connection with the use of this information. Please consult your investment advisor before making any investment decision.

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