canadian income trusts to be taxed

Just hold em through a dividend or two and wait until tax loss season finishes. Specifically, expect a nice jump in the beginning of Dec. Last tax sales will be occurring, ex-div dates are around then, and as a bonus you might get some cold weather to force natural gas and oil prices up.

At nearly 20% dividends right now, I don't mind a falling knife. Even at my current cost basis (which was in lightly even before the tax shock news), my divvies will pay for my principal losses in 5 months.

Like I said, I rarely see opportunities like this. 4 yrs out, there's still plenty of value in these - not to mention potential buyout interest at these prices.

I like PGH, AAV, PWE, PWI, and ENT.

We're not trading a fly by night tech stock here -- these things do have a price floor, as long as commodity prices are nice.
 
I'm watching PGH and have also been surprised at how far down a trust like this can fall. But independent of a change in oil prices, its hard to see it getting lower than where it's at now. The yield is nearly 18%, management holds the monthly distribution relatively constand, and their current tax status is maintained for 4 more years!
 
PGH looks pretty good - I think I will watch it but they just had a missed earnings expectation.

At first blush PWI looks pretty good too - strong earnings, so I picked it up also.

But I am not so sure about ENT. It has had a consistent run of earnings disappointments and must be more of a future expectation play and newer trust. I'll do some more research on this.

I have modest to moderate positions in the following trusts so far:

Trust US Symb Canadian Symb
ADVANTAGE ENERGY AAV
ARC Energy AETUF AET.UN
Arctic Glacier AGUNF AG.UN
Big Rock Brewery* BRBMF BR.UN
(* I am figuring on drinking problems with Canadians over this)
Canadian Oil Sands COSWF COS.UN
Enerplus Resources ERF
Fording Cdn Coal FDG (* I don' t like this but am stuck for now)
Fort Chicago Energy FCGYF FCE.UN
NAL Oil & Gas NOIGF NAE.UN
Primewest Energy PWI
Precision Drilling PDS PD
Shiningbank Energy SBKEF SHN.UN
Transforce TIFUF TIF.UN

I am evaluating and watching these other trusts:

Trust US Symb Canadian Symb
Enterra Energy ENT
Vermilion Energy VETMF VET.UN
Penn West Energy PWE
Pengrowth Energy PGH


TS
 
I don't know guys - this trust issue is pretty involved and complex the more I get into the research.

With foreign capital fleeing trusts and the damage to the trust pedigree its going to be harder for some of these trusts to compete for capital to improve reservoirs and acquire other firms etc. A lot of these trusts had business relationships with large capitalized companies and some of these comps were dumping money into them with the intent of of feeding them production as juniors etc. and sheltering tax. I think the trust bust just smashed a lot of cozy relationships between larger corps etc. This means cost of production and expenses are going to increase without the benevolent de-facto partner subsidies they were previously enjoying. The bottom line is a lot of these trusts are going to come under pressure to cut dividends due to the damage to the business "trust" relationship...

Sigh, I just love how a government can take a wrecking ball to a perfectly well functioning and efficient part of their national economy and bash itself in the eye to spite its face. Just amazing...

TS
 
Quote from TrendSailor:

I don't know guys - this trust issue is pretty involved and complex the more I get into the research.

With foreign capital fleeing trusts and the damage to the trust pedigree its going to be harder for some of these trusts to compete for capital to improve reservoirs and acquire other firms etc. A lot of these trusts had business relationships with large capitalized companies and some of these comps were dumping money into them with the intent of of feeding them production as juniors etc. and sheltering tax. I think the trust bust just smashed a lot of cozy relationships between larger corps etc. This means cost of production and expenses are going to increase without the benevolent de-facto partner subsidies they were previously enjoying. The bottom line is a lot of these trusts are going to come under pressure to cut dividends due to the damage to the business "trust" relationship...

Sigh, I just love how a government can take a wrecking ball to a perfectly well functioning and efficient part of their national economy and bash itself in the eye to spite its face. Just amazing...

TS
More...

Don't worry too much. Fundamentally, as long as this business model has an asset (wells, etc.) it will be still valuable. Any short term fracture is just an opportunity for someone else to come in and arb.

Even if these trusts decide out of need to survive to go to a more similar business model to your conventional oil/gas company (ie Devon), the value is still fundamentally there.

I never bought these for the idea of hoping for buyouts, but I wouldn't be surprised if in the next month or so you see this start to happen. Would make nice cheap resource acquisitions for some of the oil/gas majors.

Can't speak of the non energy trusts, however. I hear some are as diversified as being involved in energy, mattresses, and strip clubs all at the same time. :)
 
Quote from scriabinop23:

Don't worry too much. Fundamentally, as long as this business model has an asset (wells, etc.) it will be still valuable. Any short term fracture is just an opportunity for someone else to come in and arb.

Even if these trusts decide out of need to survive to go to a more similar business model to your conventional oil/gas company (ie Devon), the value is still fundamentally there.

I never bought these for the idea of hoping for buyouts, but I wouldn't be surprised if in the next month or so you see this start to happen. Would make nice cheap resource acquisitions for some of the oil/gas majors.

Can't speak of the non energy trusts, however. I hear some are as diversified as being involved in energy, mattresses, and strip clubs all at the same time. :)
More...

Thanks for the encouragement scriabinop23. I am a problem solver by nature and its just frustrating to see Pandora's box forced open and the billions upon billions of dollars in value evaporated by the callous insensitivity and actions of one financial madman. The unfairness in how it came down is just alien to what I like to think is civilized western culture. But I digress and there is a lot of money to be made here on the misfortunes and the governments betrayal of others if we are smart. I have a bunch more data...

I did some poking around and am confirming my theory that the market is discounting these trusts basically 25% of cash flow in anticipation of the future hit of taxes. So basically that means if the discounted dividend yields are less than conventional competitive rate alternatives then don't buy into the risk. However, it also looks like there is a high probability of some of these trust going fully bust due to not being able to sustain the high div yields by the time it takes to double your initial investment. The most highly yielding trusts (in the mid to upper double digit dividend rates) are the ones to be most suspicious of. In other words those that are on the lower end of the payout ratio are going to be able to weather commodity price variations best and likely to hang around for a takeover or corp restructure.


Also, my idea of looking at these as a bond or preferred stock apparently is not far off the mark. One analyst is using the trust's money lending credit rating as an indication of their quality and financial integrity and "risk". That has yielded the following "high quality credit" trusts I am going to look into:
EPCOR Power (9.5% yield) EPCPF
Northland Power (8.8% yield) NPIFF
Great Lakes Hydro (6.7%) GLHIF
Pembina Pipeline (7.7%) PMBIF
Embridge Income (8.8%) EBGUF
Boralex Power (9.9%) BLXCF

Risker plays are:
Trilogy Energy (16%) TETFF
True Energy (25%!!?) TUIJF
Bonavsta Energy (13%) BNPUF

See this article:
Bottom fishing in the trust sector

Also as I anticpated some of the better trusts are actually increasing in price in anticpation of higher valuations when they get taken over or convert.

Check out this article:
The Settling Dust

Very interesting stuff and with smart investing and a little luck there could be some huge wins for some traders and investors. I think the mistake is going to be in going in blind on yield since a lot of these trusts can NOT sustain these high dividend dividends and were already marginal before the trust bust.

TS
 
Good articles that allude to the point as simply this: ponzi schemes were ponzi schemes before and after this trust tax announcement hit.

Just do your homework on actual assets these trusts have, and you'll be set. ie.. if looking at pengrowth, become familar with their reserves, estimated life before total depletion, etc. Nothing changed with these trusts with that considered -- they were depleting assets before this announcement as after. I'm impressed, though, how some of these trusts manage to actually keep production up and stimulated through acquisition and new drilling. Thats something private drilling deals don't tend to do (read later).

Which is the same reason XOM and CVX aren't shooting up to 150 any time soon. (unless you see $150 oil being sustainable).

as far as potential reduction of dividends, it is immaterial -- you might actually have price appreciation because investors see that these trusts aren't paying out more than they take in.

this is technical selling, tax selling, etc... when it is over, I think these things will have a nice run up. This is the perfect fear environment to buy into. All of these 'they could drop another 10% articles' are a good sign.. This is a net 30% tax increase (60% of distribution is net versus 85% of distribution).

60 x 100k = 60k (future yield after taxes)
85 x 100k = 85k (current yield after taxes)
60/85 = 70% of previous dist total.

in 4 years. PGH for example, is already down 25%+ and has a tax holiday.

BTW, this is my first year holding these canroys, but correct me if I am wrong, you can get the 15% withholding credited. so net is:

75 x 100k = 75k (future yield after taxes)
100 x 100k = ...

So 25% is the net drop of yield.

We're done selling. And if they drop another ten-twenty percent, I think I may have to break some money management rules since this opportunity is so unfathomable. :)

Several of the past few years I've invested in drilling partnerships (not tradeable, but cash investments) -- deals where you put your money down, wait a few years for principal payoff, then enjoy anything after that as gravy. At these pricing levels for canroys, you can pretty much get in on similar profit opportunities (long term) even with taxes considered ...

Some years will be good for natural gas, some years will be bad... and thats the name of the game.

For another 5-8 years, its a good play. (i think nuclear power will be a nat. gas and possibly oil killer -- but not an issue in the near term)

average into some uranium jrs and majors while you're at it... ccj, urre, frg, (and tse: u, emc, etc.etc.)
 
wow..
i think a day like today drove the bulls' fear right out the door. we might be done.

good technical hammer, and good reason for anyone taking tax losses to maybe wait and hope for better times.

:)
 
U.S. trust owners are subject to 15% withholding tax on distributions but this is recoverable as a foreign tax payment on your tax return.
 
We had an amazing spike up today across the board on the Canadian Trusts. I hope this is not a false bottom - I just jumped in hugely like a kid discovering candy land. I missed a sharp 3-4% run up this morning on some of these ... sigh. I hope I didn't over do it here haha but I love a fire side sale...

Keeping my fingers crossed...

I now hold enough of the Canadian GDP that I think I should start a Busted Trust Mutual Fund.

Here are the trusts that I currently hold:
Advantage Energy AAV
ARC Energy
Artic Glacer
Baytree Energy
Big Rock Brewery
Bonavista Energy
Boralex Power
Canadian Oil Sands
Canetic Resources
Crescent Point
Epcor Power
Enerplus Resources
Enterra Energy
Fording Canadian Coal
Fort Chicago Energy
NAL Oil & Gas
Pembina Pipeline
Pengrowth Energy
Penn West Energy
Primewest Energy
Precision Drilling
Shiningbank Energy (a bit weak though)
Transforce
Trilogy Energy
True Energy
Vermillion Energy


I'll toss some back after I get a capital gain.

TS
 
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