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Canadian Royalty Trusts


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#1 PorkLoin

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Posted 20 January 2006 - 10:39 AM

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Per mss's idea of having a portfolio posted, here are some of the Canadian royalty trusts I follow. I own every one of these. Nice dividends, which are often reliant on continued high energy prices. Natural Gas has had a big price decline, from $15+ to $8+ but it's still historically high (looks to me like it's only been over $7.50 for about 11 months since the beginning of time). Of course that is not adjusted for inflation, but well-run gas companies are still making big profits.

Oil has been strong, may still be in a months-long correction from the late summer price high, but I don't think the overall bull market is necessarily over. Maybe gas goes up some after the big decline, and maybe crude oil goes on down -- I certainly don't know and this isn't a recommendation to buy these trusts on technical indicators. Some of them look good, technically, and some don't, depending on the time frame one examines.

Canetic is applying for a NYSE listing, and Viking is merging with Harvest Energy Trust (another good one) which is already there, under HTE. There are about five other trusts already listed on the NYSE, but in my opinion they are not as good buys right now. Stockcharts displays them all, and AET.UN would be AET/UN.TO on Stockcharts.

There are some trusts that pay out almost all their distributable cash in dividends. I consider them higher-risk, since energy price declines would surely mean dividend cuts in fairly short order. Dividend cuts usually mean severe share price declines in this arena. Calpine is over 90% at the present, but its contracted power prices are not as vulnerable to declines as are oil and natural gas. Shiningbank is over 80% and this is of some concern to me since it's heavily gas-weighted, but it remains a well-managed and solid trust.

For the portfolio I aimed for a beginning value of $10,000 and got as close as possible to putting equal amounts of money into each trust while not going fractional on the number of shares. My opinion is that equal money brings less risk than an equal number of shares. After the crude oil price peak/hurricane Katrina time late last summer, most trusts came down in price, and fell hard when Canadian governmental policy about taxation came into question. That issue was resolved, no new or higher taxes for now, and none really likely for at least a while, and back up the trusts went in price, some to new all-time highs.

Barring large energy price increases, the biggest and easiest money here has already been made, from 1999 through 2005. Large energy price declines, like gas going to $5 or below, and oil to $40 or below, would almost surely make these a bad investment while the declines happened.

Best,

Doug

#2 Mike

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Posted 20 January 2006 - 11:40 AM

Thanks for posting this. Do you follow ERF - Enerplus Resources Fund? It's Canadian and trades on the nyse. Martin Weiss touts it quite a bit.

#3 PorkLoin

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Posted 20 January 2006 - 12:56 PM

Hi Mike, You bet I follow Enerplus. It has the largest reserves of the Canroys (Penn West is 2nd). It has the 2nd biggest production, while Penn West is 1st. It's also the most highly-valued trust (market cap.), and PennWest is again #2, and that's the problem -- it's a great, powerful trust with economy of scale and IMO good mgmt. for years, but it's a big name and it's been on the NYSE for awhile, and everybody knows it and talks about it and it's been bid up to the point that it only yields 8.65%. I owned Enerplus for years, and sold it the week of Hurricane Katrina. Not great timing since it went up 12% in the following month. Then the trusts took a whacking into Oct. and Nov. I bought them back, but then as now my opinion was that other trusts will gain relative to ERF. Canetic now has the 3rd largest production and the Harvest + Viking merger will create a trust with the 4th largest. Canetic yields about 11.5% and Harvest is at 11% (will go up a little after the merger) and Viking is over 15% (will go down after the merger). Enerplus is also paying out a higher portion of its distributable cash in dividends than the other trusts mentioned in this post, and thus overall I say more bang for the Buck with other trusts. Best, Doug

#4 mss

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Posted 20 January 2006 - 01:14 PM

Very nice post and informative info with it. How often do you plan to update it? Think the side notes about the co. is a great help to those who wish to do DD. :cat:
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#5 calmcookie

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Posted 20 January 2006 - 01:17 PM

Thanks for your post Doug. Interesting. Best, C.C. :)

#6 PorkLoin

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Posted 20 January 2006 - 02:08 PM

MSS: How often do you plan to update it? Think the side notes about the co. is a great help to those who wish to do DD.


I'd like to do it every week or so, Scott. Easy to say, of course, but it's a rare trading day that I don't spend an hour or more on trusts, so it shouldn't be that big a trick to do the math once in a while. On the notes about each trust - there is lots to say and I'll try to post a lot more. And there has to be more, like with Daylight. Yielding almost 14% yet it's been trading rather calmly of late. I'd think it would get the share price bid up but there's enough doubt of the trust itself and/or fear of falling energy prices that it's been holding relatively steady for a few months.

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Same for Thunder. Good grief, a 15%+ yield and the price has gone sideways for three years! Seems to me this is less "Fearless Forecasting" and more sitting, being patient, looking at long-term trends, and maybe even, God help us, fundamentals.

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Boring, weak action?

Doug

#7 hiker

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Posted 20 January 2006 - 10:38 PM

Doug - thanks for sharing the great work! Very helpful.
why is it important to wear sunglasses, even on cloudy days?

UV damage to the eyes is cumulative during the lifetime

blindness from UV damage to the eyes is preventable for the current younger generations -

elvis wore shades - by the Cleveland Clinic

#8 PorkLoin

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Posted 22 January 2006 - 07:16 PM

You're all very welcome. Hiker. we shall see if it's helpful - my posting could be a contrarian signal of a top! Nothing much happened late in the week. Share prices are up almost 1% on average from the close on the 18th. No big deal, the portfolio would be worth about $90 more. NAL went down 1.7% and that's a surprise to me. The company brought out some guidance on Jan. 18 and it looks good for 2006. NAL has conservative management, is only paying out about 55% of distributable cash in dividends (so there's some room to maneuver if energy prices fall), and has a good track record. Still, it figures it went down - in my actual accounts it's the one I have the most money in. :blush: Doug

#9 vitaminm

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Posted 22 January 2006 - 10:36 PM

Doug, Do these Trusts pay dividend monthly or quarterly?
vitaminm

#10 PorkLoin

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Posted 23 January 2006 - 08:59 AM

VitaminM: Doug, Do these Trusts pay dividend monthly or quarterly?


Hey Vitamin, M for monthly.

There are some relatively few trusts that do pay less frequently than monthly, like Canadian Oil Sands Trust, which pays quarterly - Feb., May, August, Nov., but all the ones I listed pay monthly. An example is Shiningbank, which announced on Jan. 19th that it'll pay C$0.30 per share, the ex-dividend date to be Jan 27th, and the pay date slated for Feb. 15th. That's a very normal pattern, and shortly after Feb. 15 they'll announce the February dividend.

Canadian Oil Sands Trust has been a "darling" of the media and brokerages, and has had a heck of a run, from under C$25 in 1999 to $150 last week, but the yield is currently less than 3% and I think lots of the news and hype is priced in. The dividend doubled last October, and the oil sands may be a huge deal in the future, but I still think that for now there is not the potential for share price increase and big dividends in COS as there is with the trusts I listed.

There are some Canadian resource trusts dealing with coal mining, metal ore mining, timber, etc., and some of them pay quarterly too, but of the oil & natural gas trusts, as well as the power generation trusts, which are the ones I'm interested in, it's only Canadian Oil Sands that doesn't pay monthly. By far, most of them will make the ex-dividend date around the 27th or 28th of the month, and pay about three weeks later. Nice for compounding, i.e. if the yield is 15% then with reinvestment the effective yield for a year goes up 1-2%.

Best,

Doug