Buying Opportunity For Canroys
Jul 24th, 2007 by Wealth Builder [This post is written and copyrighted by Wealth Building Lessons (http://www.wealthbuildinglessons.com).]
The last time I wrote a post about investing in Canadian Royalty Trusts was a few months ago. Since then the price of Canroys has increased and the yields have dropped. If you missed that opportunity to invest, you might have been put off by the lower yields.
However, today’s 200 point drop in the Dow Jones Industrial average has provided another a good opportunity to buy them. Its also a good opportunity to invest new money into them.
If you’re already invested and you’re like me, then you’ve already enrolled in the Dividend Re-investment Program (DRIP). This program allows you to buy new stock(or units in this case) with your dividends without having to pay any commissions. Sometimes you’ll also get a slight discount to the market price too.
So today’s drop in prices means that this month’s dividends will buy you more shares than last month.
Any short term fluctuations in their prices shouldn’t be a cause for panic selling. After all, the demand for oil and gas is not going to decrease any time soon.
So long as the payout ratio of the fund is sufficient to acquire new leases and wells, the long term viability of your fund should be secure. For example, PGH has a payout ratio of 95%. This means that the company is only retaining 5% of the earnings for future growth. This is on the low side in this sector and thus you should try to avoid funds with payout ratios that seem too high.
Right now you can buy several Canroys with yields over 12% (and with some, thats after taxes). I’m currently invested in Harvest Energy Trust (HTE), Canetic Resources Trust (CNE) and Advantage Energy Income Fund (AAV). And most of them pay distributions on a monthly basis.
And don’t forget to enroll in the DRIP.
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5 Responses to “Buying Opportunity For Canroys”
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What would happen to canroys after 1/1/2011? I read somewhere that Us investors ( I assume you are a US based blog)will be taxed 15%+31% on the distributions.
The whole uncertainty makes the yields less attractive. The positive is that these canadaina oil and gas trusts could buy new properties, although they have limits to the amount of new units(stocks) they could issue. Otherwise they would be losing their preferential status earlier.
The reserve will last about 10 years without any new acquisitions. So if the trust cannot do acquisitions in the future by using its stock, the end result would be that you won’t be able to recover your investment.