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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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| Earn
9% Yields and Gain Exposure to the Booming Oil Market with an
Investment in PTF |
Published: September 21, 2005
As crude prices continue to level off, high-yielding Canadian royalty
trusts are starting to come down from their lofty levels. One fund that
I've been eyeing is Petrofund (PTF), which trades on the American Stock
Exchange (AMEX) and still yields roughly 9% despite a better than +50%
run-up in its share price in the past year.
Founded in 1988, Petrofund is one of the oldest Canadian royalty trusts
and the first to list on a U.S. stock exchange. Its strategy relies on
buying (rather than finding) oil and gas reserves, which generate
production and provide stable cash flows that the firm can then
distribute to its shareholders.
The strategy has worked reasonably well for nearly two decades, but it
does carry some risk, such as over-paying for its purchases and diluting
its share base.
Recent purchases have added about 40% more reserves with above-average
reserve life of nearly nine years. The production and cash flow
generated from these reserves should help sustain Petrofund's
distributions for the foreseeable future.
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Most of these purchases have been funded with new share issues,
making per share earnings and dividend growth highly volatile over the
last few years. In addition, the purchases have triggered rising
depreciation expenses, which have put a lid on earnings. However, these
accounting issues haven't affected cash flow available for distributions
and the company maintains a strong balance sheet, with debt at just 20%
of total capitalization.
The trust has paid regular monthly distributions of 16 cents (Canadian)
per share for the past year and a half. That's down from 18 cents a
share in 2003 and considerably less than some prior years' payments.
However, the company does not overextend itself. Its payouts represent
just 80% of cash flow, so payments should remain stable in the years to
come.
Action to Take: PTF's share price has retreated with the
recent slide in oil and gas prices. Since I don't expect the downward
momentum to continue much longer, I think now may be an opportune time
to take a position in the shares. I also like the fact that this trust
is co-listed on a U.S. exchange, so it's easy for subscribers to track.
Finally, the fact that the trust has been provisionally selected for
membership in Canada's S&P/TSX stock exchange means it will likely
gain in value as index funds and other institutional buyers purchase its
shares.
Important
Note: The above article
was merely a small excerpt from a recent issue of our premium,
income-oriented investing newsletter -- High-Yield Investing.
In each issue of that newsletter, editor Carla Pasternak delivers a host
of other investing ideas and tips designed to help you earn strong gains
and above-average income from your portfolio. To receive your copy of
our most recent High-Yield Investing newsletter, as well
as other guidance similar to this every month, you'll need to register
for this separate publication. If you're not already a High-Yield
Investing subscriber and you'd like to learn more about this
publication, then please visit the following link:
https://web.streetauthority.com/subscribe-hy.asp
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