Canadian Royalties Revisited
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.
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November 24th, 2006 at 6:22 am
But they’ll take down your capital basis and so if you sell increase your CGT I think… so it is like deferred tax.
November 24th, 2006 at 10:00 pm
True, but if you never sell, there’s no tax!
if you do and you’ve held for over a year, you’re paying long term capital gains too! [in case the 15% tax treatment on dividends disappears too!]
November 28th, 2006 at 5:12 pm
I’ve got a bit of AAV also, its got a great yield. Plus, I think that the canadian government may negotiate with the canroys, possibly grandfathering them in.
December 28th, 2006 at 2:50 am
Yield is very attractive in AAV, but the price keeps sliding. Street.com has a sell recommendation. Looks like this and others like it are badly managed companies. If the stock goes from 11 to 5, a 17% divident is not going to help.