LIVING OFF DIVIDENDS & PASSIVE INCOME

Congrats on your passive income numbers! I’ve got a while to go before I reach that myself. As an investor in canroys myself, I’ve learned that it is important to pick stocks that don’t cut their dividends. The yield of hte and aav might be attractive but you’ll lose a heck of a lot more capital than gain from the yield if they end up cutting their dividends. Those two in particular (hte, aav), have a history of cutting dividends, especially in a high oil price environment and would NOT recommend them at all.

Another factor to consider is how much of their revenue comes from oil vs gas. AAV and HTE earn a significant portion of their revenue from gas, which is not controlled like oil is by OPEC. A better canroy play would be cpg.un, close to 90% oil and hasn’t cut its dividend.

Deez,

thanks for your comments. Your concerns are quite valid.
However, I’d like to counter with 2 points.

AAV invests mostly in Natural Gas. NG prices have been quite depressed lately.

All the NG wells in the US are working at full capacity and there have been hundreds of wells brought on line this year. But the output has pretty much remained the same. Thats a good reason to believe peaked with our NG production. Any disruption in supplies could cause a spike in prices, which is good for holders of NG canroys.

Also, just because the company cuts the dividend, doesn’t mean its making a loss or making less profit. Its using the dividends to re-invest in increasing the depleting reserves. This is good in the long-term. A reinvestment in the business is always good.

Another bonus point, is that Abu Dhabi’s utility company just spent $5 Billion on an NG canroy. Believe me, a country with 1.6 million people doesn’t need $5 Billion worth of NG. It bought it as an investment and because it thinks the prices are going higher!

as far as HTE is concerned, its invested in a refinery. I find that sort of vertical integration appealing. It has temporarily cut the dividend for 1 quarter and the money is being reinvested in the company.

Typically oil/NG producers hedge their production out 6 months, so the spike in oil prices we saw in the later half of 2007, may not have been a windfall for many canroys. Hopefully oil prices will stay high so they can benefit from this.

Great to see a break down on passive income. Thanks for sharing. I had never thought of doing this but you have inspired me. I enjoy your site. Keep up the good work and good luck with business school. I just finished up my MBA last August.

For holders of AAV: http://biz.yahoo.com/cnw/071214/advantage_energy_08.html?.v=1

Distribution cut to 0.12/unit starting this month, more of a result of unit dilution (see mention of production (BOE) per unit in my post above).

IMO these types of royalty trusts should not be out there, I’d recommend doing your DD before investing rather than simply buying them for their yield. There are much better managed royalty trusts.