Canadian Royalty Trusts Pay High Dividends

If you are looking for high income, consider a Canadian royalty trust that sells oil and gas from its proven and probable reserves. The trust pays shareholders a large percentage of its free cash in the form of monthly distributions (dividends). Typically the yield is in excess of eight percent.

Canadian Royalty Trusts
Trust	Symbol	Estimated Annual Yield	Cash Distribution (U.S. $) 11/2006	Stock Price 10/30/2006
Canetic Resources Trust	CNE	13.69%	$0.20	$17.53
Enerplus Resources Fund	ERF	8.20%	$0.38	$54.03
Harvest Energy Trust	HTE	13.96%	$0.338	$29.05
Pengrowth Energy	PGH	13.35%	$0.22	$19.77
Penn West Energy Trust	PWE	9.65%	$0.30	$37.30
Primewest Energy	PWI	10.46%	$0.22*	$25.25
Provident Energy	PVX	11.09%	$0.11*	$11.90
Note: Estimated annual yield is equal to the November 2006 distribution multiplied by 12 divided by the stock price on October 30, 2006. Cash distributions and share prices were taken on October 28, 2005 from the trusts' web sites. * October 2006 cash distribution.

One downside of a royalty trust is that eventually it will run out of oil and gas so before you buy one, check the reserve life of the trust's holdings. Look for a reserve life of at least ten years and the longer the better. Of course a trust can purchase new reserves but there is no guarantee of their life span.

A trust pays its monthly distribution from free cash flow (net income plus depreciation minus capital spending). Compute the ratio of the distribution with the cash flow. A small percentage means the distribution can be maintained or increased. Beware of a large percentage of 90% or more.

The day-to-day price of a trust usually tracks the price of oil and natural gas. When oil and gas prices fall, the share prices of most trusts will fall. Unlike a bond that pays you full face value when it matures, the future price of a royalty trust is not guaranteed.

Posted October 31, 2006.