What are royalty trusts?
On January 1, 2011, Ottawa imposed a tax on distributions of income trusts and royalty trusts. (Royalty trusts are a form of income trust. They profit from royalties associated with the sale of oil, natural gas or minerals.) The new tax put income and royalty trusts on an equal tax footing with regular corporations.
Virtually all royalty trusts then converted into conventional corporations.
Royalty trusts derived income from royalties associated with the sale of oil, natural gas or minerals. These trusts often promised high yields compared to stocks and bonds, and involved far more risk than most investors realized. We recommended very few royalty trusts here at TSI Network, but we did manage to find some real gems among the ones we recommended.
If you are looking for high yields, just like royalty trusts, consider dividend-paying stocks.
The best companies to invest in for a high dividend yield have strong positions in healthy industries. They also incorporate strong management that makes the right moves to remain competitive in changing marketplaces.
Dividend yields are a sign of investment quality. Some good companies reinvest profit to spur growth instead of paying dividends. But fraudulent and failing companies are hardly ever dividend-paying stocks. So if you only buy stocks that pay dividends, you’ll automatically stay out of almost all the market’s worst stocks.
Invest in the best dividend stocks by following TSI Network and using our three-part Successful Investor strategy:
1. Invest mainly in well-established companies;
2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
3. Downplay or avoid stocks in the broker/media limelight.
Discover how to build a winning stock market portfolio in this free special report, Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada, from TSI Network.
Pat McKeough responds to many personal questions on stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And every Friday, we offer you one of the highlights from these Q&A sessions.
This week, …read more »
PEYTO ENERGY TRUST $17.17 (Toronto symbol PEY.UN; Units outstanding: 121.9 million; Market cap: $2.1 billion; TSINetwork Rating: Extra Risk; Dividend yield: 8.4%; www.peyto.com) produces and explores for oil and natural gas in Alberta. Its average daily production of 23,775 barrels of oil equivalent (including natural gas) is weighted 86% toward gas and 14% to oil.
At current production rates, Peyto has …read more »
ZARGON ENERGY TRUST $19.63 (Toronto symbol ZAR.UN; SI Rating: Speculative) (403-264-9992; www.zargon.ca; Units outstanding: 23.7 million; Market cap: $465.2 million; Dividend yield: 11.0%) has bought privately held Oakmont Energy for about $9.45 million. The purchase price consists of 336,000 Zargon units, plus Zargon will assume about $3.45 million of net debt (including adjustments and transaction costs).
Oakmont produces about 280 barrels …read more »
ARC ENERGY TRUST $20.54 (Toronto symbol AET.UN; Units outstanding: 275.0 million; Market cap: $5.6 billion; SI Rating: Speculative; Dividend yield: 5.8%) reports 17.6% higher revenue in the three months ended June 30, 2010, to $276.7 million from $235.2 million a year earlier. Cash flow per unit rose 45.5%, to $0.64 from $0.44. Increased production and higher oil and gas prices …read more »
PENN WEST ENERGY TRUST $19.68 (Toronto symbol PWT.UN; Units outstanding: 452.7 million; Market cap: $8.9 billion; SI Rating: Extra Risk; Dividend yield: 9.1%) is the largest oil and gas trust in North America. It produces an average of 163,700 barrels of oil equivalent per day (weighted 59% to oil and 41% to natural gas).
In the three months ended June …read more »
ARC ENERGY TRUST $19.86 (Toronto symbol AET.UN; Units outstanding: 250.9 million; Market cap: $5.0 billion; SI Rating: Speculative; Dividend yield: 6.0%) produces oil and natural gas in western Canada. Its average daily production of 67,207 barrels of oil equivalent (including gas) is weighted 46% to oil and 54% to natural gas.
In the three months ended March 31, 2010, ARC’s revenue …read more »
PEYTO ENERGY TRUST $13.25 (Toronto symbol PEY.UN; Units outstanding: 120.9 million; Market cap: $1.6 billion; SI Rating: Extra Risk; Dividend yield: 10.9%) produces and explores for oil and gas in Alberta. Its average daily production of 19,133 barrels of oil equivalent (including natural gas) is weighted 83% toward natural gas and 17% to oil.
At current production rates, Peyto has proven …read more »
ARC ENERGY TRUST $19.84 (Toronto symbol AET.UN; Units outstanding: 235.9 million; Market cap: $4.7 billion; SI Rating: Speculative) produces oil and gas in western Canada. Its average daily production of 62,824 barrels of oil equivalent (this measurement includes natural gas) is weighted 49% to oil and 51% to natural gas.
In the three months ended September 30, 2009, ARC’s revenue fell …read more »
Starting in 2011, Ottawa will impose a tax on distributions of income trusts, including royalty trusts. This will put trusts on an equal tax footing with regular corporations.
Many trusts are converting to corporations as a result. Some are even cutting their distributions. However, as we noted in a recent issue of Canadian Wealth Advisor, two royalty trusts have an …read more »
TRUE ENERGY TRUST $0.84 (Toronto symbol TUI.UN; SI Rating: Speculative) (403-264-8875; www.trueenergy.ab.ca; Units outstanding: 78.5 million; Market cap: $65.9 million) plans to convert itself into a conventional corporation by late October.
The trust’s long-term debt now stands at $110 million. That’s still a high 166.9% of its market cap. But the trust reported cash flow of $10.5 million, or $0.14 a …read more »