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.
Showing posts with label Canroys. Show all posts
Showing posts with label Canroys. Show all posts
Diversifying Streams of Income - Passivity the Key
I have been trying to diversify the various streams of income that I currently get.
I have my earned income from my 9 to 5 job. This is the most hard earned income as I literally have to work hard to earn it. Any day I stop going to work means that I stop earning money literally. In this time and age with the retirement age set at 62, I need to find some kind of work that will allow me to work beyond the official retirement age.
I have dividends from my stocks and real estate investment trusts (REITs). Sold off my Canadian Royalty Trusts (Canroys) some time back so I no longer am able to get those monthly cheques which were wonderful to get.
Online ad revenue has also been kind to me as I have managed to sell certain spaces on my blogs for cool sums of money. It is sometimes quite amazing how I have managed to diversify the various streams of income. From relying solely on Adsense to other alternative sources.
I have been toying the idea of starting a business but still do not have a concrete idea what to sell. It needs to be something really easy to set up and which requires minimum effort on my part. It doesn't have to bring in much, maybe just few dollars a month.
What I realised is this: Once I open up another stream of income, I become surer of myself and somehow will be able to slowly turn on the taps and increase that stream till it turns out to be a sizeable stream.
I will keep all updated once I have managed to seek out that additional source of passive income.
Stay tune!
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.
Future of Canroys
Canadian Royalty Trusts are usually energy producers (e.g. oil and natural gas) The trusts give out high dividends because they don't have to pay corporate income taxes if they distribute their income to unit holders (shareholders). Canadian royalty trusts differ from U.S. royalty trusts in that U.S. trusts are not allowed to acquire new properties whereas Canadian royalty trusts can. Canadian trusts are not corporations, and in theory at least, unitholders have unlimited liability for the actions of the trust. In practice, however, most experts consider it unlikely that individual unitholders will ever be held liable for the trusts actions.
Now, that is changing. When certain large corporations announced their intentions to convert to the trust structure, the Canadian government (Tories) changed the rules as they feared a drop in tax income from loss taxes. By 2011, all existing trusts will have to pay taxes similar to that of corporations while newly formed trusts will no longer get any tax incentives that current trusts enjoy.
A trust has only limited oil and natural gas reserves and these reserves are slowly depleted. With the proposed changes and uncertainty looming, access to new capital might be difficult thus making new acquisitions harder. Trusts without sufficient reserves in the ground may be unable to maintain their current distribution levels. Once the tax incentives stop in 2011, trusts might opt to use their profits for capital expansion or new projects instead of distributing them..
So what will happen between today and 2011? Some trusts could convert to regular corporations during this period. Others might be left with no choice but to reduce their distribution as their oil and gas reserves are depleted. Those that are able to step-up their output substantially will also be able to carry on the high distribution.
See Related Articles:
PWE
PWE? You might be thinking that I have gone crazy. Is is some wrestling federation or something like WWE?
Nope, PWE stands for Penn West Energy Trust. Just typing PWE into Google gives me the stock price of this canroy which I own. It is listed on the New York Stock Exchange with the ticker symbol as PWE.
In fact, I have been receiving cheques from PWE every month for the past few months. Based on my estimate, the distribution yield by this canroy is slightly below 10%. It does make a very good income source I must say.
It also just declared its distribution for the month of September:
Penn West Energy Trust ("Penn West") (TSX:PWT.UN) (NYSE:PWE) confirms that its September 2009 cash distribution will be CDN$0.15 per trust unit payable on October 15, 2009 to unitholders of record on September 30, 2009. The ex-distribution date is September 28, 2009.
The CDN$0.15 per unit is equivalent to approximately US$0.14 per unit (before deduction of any applicable Canadian withholding tax) using currency exchange of one Canadian dollar equals US$0.90. Registered unitholders with U.S. addresses will receive their distributions directly from Penn West's transfer agent, and will be paid in U.S. currency using the exchange rate in effect on the record date. Non-registered U.S. unitholders will receive their distributions through their brokers.
I bought into this stock while it was over US$10. Today it trades at close to $15. That is close to a 50 per cent gain on top of the dividends that I have received. But guess I will just hold on to this stock for now.
See Related Articles:
1. Income Investing - Canadian Royalty Trusts
2. Investing in Canadian Royalty Trusts
Nope, PWE stands for Penn West Energy Trust. Just typing PWE into Google gives me the stock price of this canroy which I own. It is listed on the New York Stock Exchange with the ticker symbol as PWE.
In fact, I have been receiving cheques from PWE every month for the past few months. Based on my estimate, the distribution yield by this canroy is slightly below 10%. It does make a very good income source I must say.
It also just declared its distribution for the month of September:
Penn West Energy Trust ("Penn West") (TSX:PWT.UN) (NYSE:PWE) confirms that its September 2009 cash distribution will be CDN$0.15 per trust unit payable on October 15, 2009 to unitholders of record on September 30, 2009. The ex-distribution date is September 28, 2009.
The CDN$0.15 per unit is equivalent to approximately US$0.14 per unit (before deduction of any applicable Canadian withholding tax) using currency exchange of one Canadian dollar equals US$0.90. Registered unitholders with U.S. addresses will receive their distributions directly from Penn West's transfer agent, and will be paid in U.S. currency using the exchange rate in effect on the record date. Non-registered U.S. unitholders will receive their distributions through their brokers.
I bought into this stock while it was over US$10. Today it trades at close to $15. That is close to a 50 per cent gain on top of the dividends that I have received. But guess I will just hold on to this stock for now.
See Related Articles:
1. Income Investing - Canadian Royalty Trusts
2. Investing in Canadian Royalty Trusts
Income Investing - Canadian Royalty Trusts
This is part 3 of a 5 part mini-series on my thoughts about Income Investing. Today, we will focus on investing in Canadian Royalty Trust and how you can benefit from such an investment.
Canadian Royalty Trusts (Canroys)
Canadian Royalty Trusts very often tend to be related to energy. They are usually involved in oil and gas mining with the occasional coal mining. Some of the newer trusts actually focus on synthetic oil and coal. Because of they pay out majority of their cash flow as dividends (distribution), they enjoy a special tax exempt status compared to corporations. Many of these trusts actually do pay out a monthly dividend similar to REITs.
Canadian Royalty Trusts are able to grow their amount of reserves and do so primarily through the acquisition of other companies. A Canadian Royalty Trust basically controls an operating company which operates and runs the oil and gas fields.
Canadian Royalty Trusts run the risk of depleting their existing gas and oil reserves. This could result in their distributions being reduced over the years. It is therefore important to take into consideration the reserve life of gas and oil fields.
Another risk of Canadian Royalty Trusts is the expected tax change in 2011 that will remove their tax exempt status. This is because the ruling party in Canada believes that such royalty trusts are actually causing them lost revenue in the region of hundreds of millions of dollars. The announcement of the proposed tax changes caused a huge drop in the prices of many of these trusts. The so called "Halloween Massacre" came about just when some corporations announced their intention to covert into trusts structures. Any hope of this tax being removed is if the Liberal party comes into power.
Many Canadian Royalty Trusts are also exploring the option of coverting back into corporations with the removal of this special tax exempt status. With a 4 year grace period till the 2011 dateline, a coversion to a corporate structure will allow these trusts to reduce distributions and re-invest money for expansion. Other options also exist which include transforming into Master Limited Partnerships - which will enjoy tax advantages in the U.S.
Canadian Royalty Trusts are traded publicly on both the U.S. Stock Exchange as well as the Toronto Stock Exchange. To invest in these trusts, you need to have access through a brokerage firm to either the US stock market or the Canadian stock market.
Investors invest in Canadian Royalty Trusts primarily for their high dividend yields. With the proposed tax changes, the future of canadian royalty trusts are a bit more uncertain and 2010 could prove a volatile period with all the expected changes.
The writer owns Canadian Royalty Trusts in his portfolio. He likes the monthly dividends he receives but is uncertain about the viability and certainity of Canroys in the future.
1.Investing in High Dividend Yield Stocks
2. Investing in REITs
3. Investing in Canroys
4. Investing in Rental Property
5. Investing in Bonds
SEE RELATED POSTS:
Read : The 25% Cash Machine
Read: Dividends I have Received Thus Far
MOST POPULAR POSTS:
The Road to Financial Freedom (10 part series)
#1 - The Greatest Mistake
#2 - Protect What You Cannot Afford to Lose
#3 - Spend Less Than You Earn
#4 - Spend Less Or Earn More
#5 - Buy Assets Not Liabilities
#6 - Read and Learn More
#7 - The Magic of Part Time
#8 - Health Equals Wealth
#9 - It's a Marathon, Not a Sprint
#10 - Congrats! You have Achieved it!
Canadian Royalty Trusts (Canroys)
Canadian Royalty Trusts very often tend to be related to energy. They are usually involved in oil and gas mining with the occasional coal mining. Some of the newer trusts actually focus on synthetic oil and coal. Because of they pay out majority of their cash flow as dividends (distribution), they enjoy a special tax exempt status compared to corporations. Many of these trusts actually do pay out a monthly dividend similar to REITs.
Canadian Royalty Trusts are able to grow their amount of reserves and do so primarily through the acquisition of other companies. A Canadian Royalty Trust basically controls an operating company which operates and runs the oil and gas fields.
Canadian Royalty Trusts run the risk of depleting their existing gas and oil reserves. This could result in their distributions being reduced over the years. It is therefore important to take into consideration the reserve life of gas and oil fields.
Another risk of Canadian Royalty Trusts is the expected tax change in 2011 that will remove their tax exempt status. This is because the ruling party in Canada believes that such royalty trusts are actually causing them lost revenue in the region of hundreds of millions of dollars. The announcement of the proposed tax changes caused a huge drop in the prices of many of these trusts. The so called "Halloween Massacre" came about just when some corporations announced their intention to covert into trusts structures. Any hope of this tax being removed is if the Liberal party comes into power.
Many Canadian Royalty Trusts are also exploring the option of coverting back into corporations with the removal of this special tax exempt status. With a 4 year grace period till the 2011 dateline, a coversion to a corporate structure will allow these trusts to reduce distributions and re-invest money for expansion. Other options also exist which include transforming into Master Limited Partnerships - which will enjoy tax advantages in the U.S.
Canadian Royalty Trusts are traded publicly on both the U.S. Stock Exchange as well as the Toronto Stock Exchange. To invest in these trusts, you need to have access through a brokerage firm to either the US stock market or the Canadian stock market.
Investors invest in Canadian Royalty Trusts primarily for their high dividend yields. With the proposed tax changes, the future of canadian royalty trusts are a bit more uncertain and 2010 could prove a volatile period with all the expected changes.
The writer owns Canadian Royalty Trusts in his portfolio. He likes the monthly dividends he receives but is uncertain about the viability and certainity of Canroys in the future.
READ ENTIRE SERIES:
1.Investing in High Dividend Yield Stocks
2. Investing in REITs
3. Investing in Canroys
4. Investing in Rental Property
5. Investing in Bonds
SEE RELATED POSTS:
Read : The 25% Cash Machine
Read: Dividends I have Received Thus Far
MOST POPULAR POSTS:
The Road to Financial Freedom (10 part series)
#1 - The Greatest Mistake
#2 - Protect What You Cannot Afford to Lose
#3 - Spend Less Than You Earn
#4 - Spend Less Or Earn More
#5 - Buy Assets Not Liabilities
#6 - Read and Learn More
#7 - The Magic of Part Time
#8 - Health Equals Wealth
#9 - It's a Marathon, Not a Sprint
#10 - Congrats! You have Achieved it!
Investing in Canadian Royalty Trusts (Canroys)
I have canroys in my portfolio. Canroys are basically Canadian Royalty Trusts (CanRoys) and usually own oil and gas fields. Canroys receive tax advantages that allows them to distribute quite a lot of money to their shareholders monthly so as to avoid paying corporate taxes. In Canada, canroys often feature in people's portfolio especially if they are looking for high dividend yield stocks.
However, it seems that there will be certain changes to the legislation pretty soon. The Canadian government will change the laws in 2011 to make existing canroys pay taxes at the same rate as that of corporations. Without the tax incentives to pay out dividends, the yield from canroys are set to drop to levels around 2 to 4% (in line with those of corporations). During the recent economic crisis of 2008, canroys prices dropped due to the announcement of the proposed tax changes in Canada.
In Singapore, you can invest in canroys as long as you have a US stock trading account. Canroys and similar stocks that can be found on the US stock exchange include the following:
However, it seems that there will be certain changes to the legislation pretty soon. The Canadian government will change the laws in 2011 to make existing canroys pay taxes at the same rate as that of corporations. Without the tax incentives to pay out dividends, the yield from canroys are set to drop to levels around 2 to 4% (in line with those of corporations). During the recent economic crisis of 2008, canroys prices dropped due to the announcement of the proposed tax changes in Canada.
In Singapore, you can invest in canroys as long as you have a US stock trading account. Canroys and similar stocks that can be found on the US stock exchange include the following:
- Penn West Energy Trust
- Pengrowth Energy Trust
- Enterra Energy Trust
- Baytex Energy Trust
- Enerplus Resources Fund
- Provident Energy Trust
- TransGlobe Energy Corp
- Nexen Inc
- Compton Petroleum Corp
- EnCana Corporation
The monthly dividends that canroys distribute will then be sent to you through mail via a cheque. Do note however there there are charges that include withholding tax (15%), postage/handling charge ($5) and 7%GST. For the month of September 09, I just received a cheque for $9.94
I currently own Penn West Energy Trust (PWE). Used to own Pengrowth Energy Trust but sold it and consolidated all my holdings of canroys under PWE.
SEE RELATED POSTS:
Read : The 25% Cash Machine
My First Cheque from Penn West Energy Trust
So I received a total sum of $6.66 for my 50 shares of Penn West Energy Trust. See picture of the cheque from Penn West below:
The distribution was actually a grand total of $14.12. HOWEVER, after deducting for a 30% withholding tax, postage/handling charges of $5 and a 7% GST, I am left with a paltry $6.66.
There you have it, my dividends nearly halved by all these expenses. Oh well, guess I will just have to accumulate more of Penn West Energy Trust for all these expenses to be worthwhile.
The distribution was actually a grand total of $14.12. HOWEVER, after deducting for a 30% withholding tax, postage/handling charges of $5 and a 7% GST, I am left with a paltry $6.66.
There you have it, my dividends nearly halved by all these expenses. Oh well, guess I will just have to accumulate more of Penn West Energy Trust for all these expenses to be worthwhile.
Subscribe to:
Posts (Atom)
-
Civil servants or public officers in Singapore are expected to declare their financial standing when they first join and every year thereaft...
-
Trying to compile the salary pay scale for the Singapore civil service. Somehow, I only managed to find the figures for 2011. There are p...
-
In my previous article , I compared an endowment plan with an ILP. Many might think that an ILP is a silly way to save for my child's ed...
-
Everybody loves free stuff. So as part of the Christmas Celebrations, I am giving away MONEY! ANYONE can earn it. Just leave a comment on th...
-
How much does a normal or average Singaporean earn? Based on median income, that is supposed to be $2,400 per month and raised to over $300...
-
Networth as of Feb 2010 is estimated around $652,000. A slight drop from Jan 2010. The decline in networth was due to a slight drop in my ... -
“We are more than that; we are in the business of creating time.” - Tay Liam Wee Mr Tay Liam Wee has an estimated networth of around S$135m.... -
Here are some frequently asked questions about sgfinancialfreedom: Q: How do you compute your networth? A: I compute my networth by adding m...
-
As most of you know by now, I have started a POSB Kids Savings account for my child. The main purpose of this account is to save for his un...
-
I can't sleep. I am worried about my finances. So I am up now counting my money in all the places that I have. Sometimes I forget that...
