Canroys

All posts tagged Canroys

I was in Los Angeles for the past several days. While spending several hours parked on the 405 freeway I heard Ben Stein on the radio. He thinks financial stocks have been beaten up and are great values right now (as of November 13th 2007).

He recommended buying a financial sector ETF. I think he mentioned Financial Select Sector SPDR (XLF). He thinks stocks like Citigroup (C) and Bank of America (BAC) aren’t going to go bankrupt and the market is over-reating. Thats quite a contrast in opinion from last week’s comment by Jim Rogers, who’s short the financial sector via ETFs.

While I didn’t jump in and buy either Citigroup or Bank of America, I did close my positions in UltraShort Financials ProShares (SKF) and UltraShort QQQ ProShares (QID) yesterday for a slight gain. I’m still not convinced enough to go long though.

Stein also recommends buying Energy Select Sector SPDR (XLE) . I’m long on the energy sector ad I think XLE will probably do well. However, I’m already heavily weighted in Canroys and direct oil-gas drilling programs so I’ll stay out of XLE too.

Penn West Energy Trust (PWE) announced that it would be buying Canetic Energy Trust (CNE). They’re both Canadian Income Trusts that payout a decent yield. However, there’s almost no premium offered to CNE holders. Well okay, there is a 7% premium offered to CNE holders but  compared to the 30% premium that was offered to PrimeWest Energy Trust (PWI) by the state run utility company of Abu Dhabi, its pretty sad.

I can understand, why Abu Dhabhi is keen to get its hands on $5 Billion dollars worth of Gas. They simply want to get rid of their US Dollars! And afters today’s rate cut and the subsequent drop in the Dollar Index, I want to bail too!

I have a rather small stake in CNE and I’m happy with its 15% yield. In comparison, PWE only yields 13%. On the surface, I’d rather not exchange my shares. However, yield isn’t the only variable in this equation. You need to consider payout ratio and reserve life. There’s a good chance that PWE scores better on these criteria than CNE does. In that case, it would make sense to vote in favor of the take-over.

Earlier this year, Advantage Energy Trust (AAV) took over Sonic Energy Trust for almost no premium. But that was before the PWE deal and before energy prices were so high. And being a shareholder of AAV, I was extremely happy with the outcome. But now the shoe is on the other foot!

Being a shareholder in the acquired company, I think the premium is too small and I’ll probably just vote against it anyway. Let PWE come back with a better offer!

A few weeks ago, I cursed the Canadian Finance Minister for causing my CanRoys to drop significantly overnight. I may have been premature in cursing him.

I originally bought them for the dividends that they were paying out, mostly in the 8-12% range, with the occasional one paying out 13-14%. However, the severe drop in prices caused their yields to jump proportionately to 12-17%. One of the companies I bought became a 19% yield! Even if Flaherty’s taxation of dividends became true, it would still be 4 years away and by then you would’ve gotten nearly 80% of your money back. Last week money started flowing back in Canroys. I picked up a little more on margin. The one I picked up, AAV currently gives a 17% yield. So even if I have to pay 9-10% margin interest I’m still ahead by 7%. Plus if Oil & Gas prices continue to rise which I think they will I’ll see some capital appreciation.

There are a few Master Lease Partnerships in the US that are like Mutual Funds of Energy Stocks. They only pay 6% dividends however the divis are considered return of principle and thus are not taxed!!! Pretty sweet deal if you ask me.