Canadian Royalty Trusts Post 2011

During the mid-2000s, Canadian Royalty Trusts (or Canroys) grabbed the minds and attentions of many retiree investors with their double-digit dividend yields. Structured as trusts, they were exempt from federal tax as long as they paid out dividends to their shareholders.

All this changed in 2011 when a new law was passed that these trusts would also be taxed like normal corporations and taxed at the corporate tax rate.  I wrote about this sometime back in the post "Future of Canroys".   This new law made little sense for the trusts and many of them converted to corporations, merged with other companies or chose the easy way out of liquidation.  The dividends of most of these Canroys have also declined sharply as they no longer enjoyed the tax exempt status.  Likewise, share prices also dropped.

Today, most of these canroys trade at only around 10% yield.  Pengrowth Energy Corporation (PGH) now trades at around US$7 but pays only a monthly dividend of Canadian $0.07.  That puts Pengrowth at a nearly 11-12% yield.  Still pretty decent for a monthly dividend stock or if one's purpose of investing is for income.  However, there have been recent talks that even Pengrowth might have to follow the path of Enerplus which cut its dividends by 50% recently. Enerplus shares have taken a beating since.

Canroys will probably face challenging times ahead.  

Canadian Income Trusts

It has been a long time since I last wrote on Canadian Income Trusts or Canroys.

I did a check to see what the situation was on these investment instruments after they fell out of grace because of the planned tax by the Canadian government which will effectively lower the distributions of these income trusts by 2011.

It seems that nothing much has changed since I last read the news. The finance minister is still coming under strong criticism from opposition parties because of the new tax ruling. The reason why the tax ruling was changed was due to a white paper released by the Department of Finance that estimated 300million Canadian dollars in tax money was being leaked away because corporations were using the income trusts structure to avoid taxes. When news of the new tax ruling broke out, billions of dollars were wiped out as the income trusts tanked.

Nothing has changed thus far and it is best that investors wait at the sidelines.