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.

You are right about HTE’s refinery, it definitely provides stability in terms of cash flow. After it cut its dividend however, the stock price dropped around 30%. If the price stays constant it’ll take a couple years to recover that lost capital. NG prices did go very high a couple years ago but then they dropped to what they are now. Back then every NG producer out there pumped to capacity. IMO, without an OPEC for NG, I just don’t think prices of NG can be maintained for significant periods.

Pavel:

I believe the distribution increases shown on the morningstar website are essentially increases due to the exchange rate. If you look at its distributions in canadian dollars:

http://finance.yahoo.com/q/hp?s=AVN-UN.TO&a=07&b=13&c=1996&d=11&e=10&f=2007&g=v

you’ll see that it hasn’t increased dividends since april 2005. Before that date they raised dividends by the year end so the external management could get bonuses if they raised stock price a certain amount.

Another metric used for trusts is production per 000 units outstanding. AAV in that sense is terrible, it has been diluting its units quite a bit, it is also a reflection on the management.

Anyways just my 2c, I’d much rather prefer conservatively managed canroys who don’t cut dividends and increase production from cash flow rather than by selling more units.

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.