pengrowth

These three resource income trusts are more volatile than telecom stocks. But we feel their high yields and steady cash flows help offset their risk. As always, you should limit income trusts to no more than 15% of your total portfolio. PENGROWTH ENERGY TRUST $18 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 247.9 million;Market cap: $4.5 billion; SI Rating: Average) owns oil and natural gas properties in Alberta and B.C. Pengrowth prefers to focus on mature, proven properties that provide it with steady cash flows. At...

ARC ENERGY TRUST $32.88 (Toronto symbol AET.UN; SI Rating: Speculative) produces oil and gas in western Canada. In the three months ended March 31, 2008, ARC’s revenue rose 32.5%, to $407.9 million from $307.8 million. Cash flow per unit rose 18.1%, to $0.98 from $0.83. The rise in cash flow came largely from higher oil prices. ARC’s average daily production of 66,976 barrels of oil per day equivalent is weighted 49% toward oil and 51% natural gas. In the latest quarter, its average realized price for oil was $89.72 U.S., up 47.6% from $60.79 a year earlier. Natural gas was $7.80 U.S., up slightly from $7.75....

PENGROWTH ENERGY TRUST $20.11 (Toronto symbol PGF.UN; SI Rating: Average) lost $0.23 a unit in the three months ended March 31, 2008, mostly due to losses on commodity hedging contracts and foreign exchange losses. It lost $0.29 a unit in the year-earlier quarter. However, cash flow per unit grew 55.4%, to $0.87 from $0.56, mostly due to higher oil and natural gas prices. Revenue rose 5.9%, to $457.6 million from $432.1 million. Pengrowth paid out 77% of its cash flow as distributions in the latest quarter, down from 135% a year earlier. Pengrowth’s improving cash flow should let it keep paying monthly distributions of $0.225 a unit (13.1% yield), as well as replenish its reserves through drilling and acquisitions. Pengrowth is a buy among royalty trusts.

PENGROWTH ENERGY TRUST $20 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 247.9 million; Market cap: $5.0 billion; SI Rating: Average) is one of North America’s largest energy royalty trusts. Pengrowth produces oil and natural gas from properties in Alberta, British Columbia and Saskatchewan. It also owns 8.4% of the Sable Offshore Energy Project, which extracts natural gas from several fields south of Nova Scotia. Natural gas accounts for roughly 60% of Pengrowth’s production, while oil supplies the remaining 40%. Pengrowth focuses mainly on high quality, mature properties that give it plenty of steady cash flows. In the past three years, it has acquired properties that have increased its reserves by 45% and its production by 63%. Based on current production levels, Pengrowth’s reserves should last at least 10 years. Pengrowth uses hedging contracts to lock-in selling prices and stabilize its cash flows. Due to the sharp rise in oil prices in the past few months, Pengrowth had to write down the value of these contracts. Unrealized foreign exchange losses have also weighed on its profits....

The main drawback to most income and royalty trusts is that many of them contain low quality assets. We aim to zero in on trusts with high quality assets that provide stable cash flows and distributions. Even the best trusts, such as these three, are still highly cyclical. However, we feel they will continue to pay above-average yields, even after Ottawa starts taxing trust distributions in 2011. Investors should limit their income trust holdings to no more than 15% of their overall portfolio....

BCE INC. $37.30, Toronto symbol BCE, earned $0.57 a share in the three months ended march 31, 2008, up 9.6% from $0.52 a year earlier. These figures exclude restructuring costs and gains on the sale of investments. Most of the increase was due to savings from the restructuring, as well as lower taxes and interest expenses. Revenue crept up to $4.39 billion from $4.38 billion, as growing demand for BCE’s wireless and Internet services offset lower revenue from its traditional telephone operations. The stock is now trading 13% below the $42.75 a share that a group led by the Ontario Teachers’ Pension Plan has offered for the company. That’s because investors fear that problems in the debt markets will force the consortium to delay, reprice or scrap the deal. However, we feel the takeover will go through by the end of the year. BCE is still a buy....

BOMBARDIER INC. $6.32 (Toronto symbol BBD.A) earned $0.26 a share in its fiscal year ended January 31, 2008, up 85.7% from $0.14 in the prior year (all amounts except share price in U.S. dollars). Revenue grew 17.5%, to $17.5 billion from $14.9 billion. Aircraft deliveries rose 10.7% in fiscal 2008, to 361 from 326. Revenue at Bombardier’s train division grew 18.2%, thanks to strong demand for passenger railcars in China and India. Buy. INDIGO BOOKS & MUSIC INC. $13 (Toronto symbol IDG) is doing a good job attracting users to its website with online community groups based on authors and genres. Since their launch in October 2007, these groups now have over 100,000 members. Features like this help build customer loyalty and spur sales. Buy. TRANSCONTINENTAL INC. $18 (Toronto symbol TCL.A) has increased its quarterly dividend 14.3%, from $0.07 a share to $0.08. The new annual rate of $0.32 yields 1.8%. Buy....

The markets rattled many investors this week with steep one-day drops. At times like this, it’s good to remember that even when a further decline lies ahead, high volatility generally signals that it’s “a good time to buy”, rather than “a good time to sell”. It’s also encouraging to see that despite the steep one-day drops, most major market indexes are still at or above the lows they hit in January. BANK OF MONTREAL $43.10, Toronto symbol BMO, fell over 10% this week after it announced writedowns of asset-backed securities and higher loan loss provisions. In its first fiscal quarter ended January 31, 2008, earnings fell 26.7% to $255 million or $0.47 a share from $348 million or $0.67 a share a year earlier. The latest earnings figure included a $324 million after-tax writedown of securities, plus a $38 million rise in loan loss provisions. If you exclude unusual items, earnings fell 8.3%....

ARC ENERGY TRUST $24.39 (Toronto symbol AET.UN; SI Rating: Speculative) produces oil and gas in western Canada. In the three months ended December 31, 2007, ARC’s revenue rose 15.6%, to $338 million from $292.5 million. Cash flow per unit rose 6.5%, to $0.82 from $0.77. The rise in cash flow came largely from higher oil prices. ARC’s average daily production of 63,989 barrels of oil per day equivalent is weighted 51% toward oil and 49% natural gas....

PENGROWTH ENERGY TRUST $18 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 246.1 million; Market cap: $4.4 billion; SI Rating: Average) produces oil and natural gas from properties in Alberta and British Columbia. It also owns 8.4% of the Sable Offshore Energy Project, which extracts natural gas from several fields south of Nova Scotia. Oil accounts for 49% of Pengrowth’s production, while natural gas supplies the remaining 51%. Pengrowth focuses on high quality, mature properties that generate plenty of steady cash flows. It also prefers to replenish its reserves with acquisitions instead of exploration. Growing by acquisition adds risk. But Pengrowth would rather replace its reserves with proven properties that immediately add to its cash flow, instead of investing in uncertain exploration projects....