This year my largest holdings were in units of SDT.UN and EIT.UN. These two exchanged traded funds invest primarily in Canadian Income Trusts and provide excellent monthly distributions which is a core value of investing for income.
Both firms recently closed a share exchange where investors in Trusts and Canadian Banks could exchange their holdings into units of the funds. The problem is that they exchanged the holdings with Units that are trading well below Net Asset Value.
This is a bad deal for existing unit holders. EIT's Net Asset Value decrease at least $0.12 per unit. The only ones that win are the managers because their fund gets larger and they consequently get more fees. Its obvious to me that the fund mangers put their interest ahead of unit holders.
If the managers were acting in the interest of existing unit holders they could have undertaken the following;
1) a rights offering to existing unit holders at a discount to market value. Unit holders would then be able to excercise their rights (and suffer no dilution) or sold their rights in the open market.
or
2) they could have waited until the market price of the units was within 5% of the Net asset Value before undertaking a share exchange
or
3) They could have done nothing and waited for the market price to catch up to the Net Asset Value.
SDT.UN's new Net Asset Value after accounting for the share exchangehas not yet been published but I suspect that the Net asset Value decrease will be in the range of 2%-3%.
SDT.Un's sister ETF fund SEF.UN undertook a similar share exchange offering last spring and unit holders lost almost 10% of their Net asset Value.
What to do now?
I am slowly starting to unload my units in SDT.UN and EIT.UN. These funds are no longer a buy and hold investment. It is my opinion that whatever value the professional management brings to these funds its all eaten up in fees and dilutions.
I am developing my own diversified portfolio of income securities.
Saturday, October 27, 2007
Thursday, October 18, 2007
Target Prices for Canadian Royalty Trusts
Please click here to download a spread sheet summary of Canadian Royalty Trust (affectionately known as Canroys) target prices by various Candadian Investment Houses as of September 28, 2007. Investors should use this information to determine good entry points into Canroy positions.
This spread sheet is courtesy of THOR on the Yahoo Canroy board.
Please note that this link will only be available until November 30, 2007.
This spread sheet is courtesy of THOR on the Yahoo Canroy board.
Please note that this link will only be available until November 30, 2007.
Tuesday, October 16, 2007
Investing for Income and the Power of Compounding
Compounding
The following is an excerpt from Richard Russell?s web site called the Dow theory letters. This is so well written that I could not explain the power of compounding in simpler terms then the way Mr. Russell has.
Richard writes;
"One of the most important lessons for living in the modern world is that to survive you've got to have money. But to live (survive) happily, you must have love, health (mental and physical), freedom, intellectual stimulation -- and money."
He goes on to say;
"Compounding is the royal road to riches. Compounding is the safe road, the sure road, and fortunately, anybody can do it. To compound successfully you need the following: perseverance in order to keep you firmly on the savings path. You need intelligence in order to understand what you are doing and why. And you need knowledge of the mathematics tables in order to comprehend the amazing rewards that will come to you if you faithfully follow the compounding road. And, of course, you need time, time to allow the power of compounding to work for you. Remember, compounding only works through time."
And finally
"But there are two catches in the compounding process. The first is obvious -- compounding may involve sacrifice (you can't spend it and still save it). Second, compounding is boring -- b-o-r-i-n-g. Or I should say it's boring until (after seven or eight years) the money starts to pour in. Then, believe me, compounding becomes very interesting. In fact, it becomes downright fascinating."
This excerpt is the key to riches and wealth using Canadian income trusts. These trusts pay dividends every month, month after month. If you reinvest these dividends then voila.....compounding!
Its so simple that you will wonder why you never though of this before! Income trusts pay you every month. If you re-invest the dividends of a trust then the magical effect of compounding will kick in. After a few years you will notice that your passive income level is begining to reach significant levels.
Conventional stocks say buy me now and maybe in the future I will give you back more money then you started. Well income trusts give you the cash every month so even if your stock price is the same 10 years from now you still have a decent total return.
The following is an excerpt from Richard Russell?s web site called the Dow theory letters. This is so well written that I could not explain the power of compounding in simpler terms then the way Mr. Russell has.
Richard writes;
"One of the most important lessons for living in the modern world is that to survive you've got to have money. But to live (survive) happily, you must have love, health (mental and physical), freedom, intellectual stimulation -- and money."
He goes on to say;
"Compounding is the royal road to riches. Compounding is the safe road, the sure road, and fortunately, anybody can do it. To compound successfully you need the following: perseverance in order to keep you firmly on the savings path. You need intelligence in order to understand what you are doing and why. And you need knowledge of the mathematics tables in order to comprehend the amazing rewards that will come to you if you faithfully follow the compounding road. And, of course, you need time, time to allow the power of compounding to work for you. Remember, compounding only works through time."
And finally
"But there are two catches in the compounding process. The first is obvious -- compounding may involve sacrifice (you can't spend it and still save it). Second, compounding is boring -- b-o-r-i-n-g. Or I should say it's boring until (after seven or eight years) the money starts to pour in. Then, believe me, compounding becomes very interesting. In fact, it becomes downright fascinating."
This excerpt is the key to riches and wealth using Canadian income trusts. These trusts pay dividends every month, month after month. If you reinvest these dividends then voila.....compounding!
Its so simple that you will wonder why you never though of this before! Income trusts pay you every month. If you re-invest the dividends of a trust then the magical effect of compounding will kick in. After a few years you will notice that your passive income level is begining to reach significant levels.
Conventional stocks say buy me now and maybe in the future I will give you back more money then you started. Well income trusts give you the cash every month so even if your stock price is the same 10 years from now you still have a decent total return.
Friday, October 12, 2007
Paramount Energy Trust - PMT.UN-T - New Top Pick
I picked up 5,000 units of Paramount Energy Trust (PMT.UN-T) for Under $8 this week. This is a risky pick because its 99% natural gas production.
Natural gas prices in Canada are very low and not very profitable.
However, Paramount has reduced their pay out to $0.10 per month ($1.20 per year) which results in a greater than 15% yield.
According to BMO research Paramounts "all-in" payout ratio is under 100% (all-in means cash distributions plus capital expenditures to maintain production) which means this trust is sustainable and high yielding.
If natural gas prices do recover then investors will see a nice capital gain. BMO's target price is $10 per unit. If paramount gets to $10 within a year then investors are rewarded with a total return of 40% (15% yield + 25% capital gain).
Now thats investing for income!
Please do your own due dilligence.
Natural gas prices in Canada are very low and not very profitable.
However, Paramount has reduced their pay out to $0.10 per month ($1.20 per year) which results in a greater than 15% yield.
According to BMO research Paramounts "all-in" payout ratio is under 100% (all-in means cash distributions plus capital expenditures to maintain production) which means this trust is sustainable and high yielding.
If natural gas prices do recover then investors will see a nice capital gain. BMO's target price is $10 per unit. If paramount gets to $10 within a year then investors are rewarded with a total return of 40% (15% yield + 25% capital gain).
Now thats investing for income!
Please do your own due dilligence.
Wednesday, October 10, 2007
The Spending and Investment Wave Propelled by Demographic Trends-Corporate Cash Machines
Harry S Dent has an article on their web site titled "The Spending Wave" (Click here to read the whole article) where he expects that US stock Markets will begin to decline starting in 2010.
He goes on to say;
"We are forecasting that the U.S. economy (and the global economy) will continue to boom into around 2010 before experiencing an extended slowdown into 2023. Stock prices are likely to peak by late 2009 or 2010 and then bottom around late 2022 or so. The Dow could reach 25,000 and the Nasdaq could surpass its old high above 5,000 before the end of the decade when this boom ends. Investors should be moving back into equities, and businesses should be investing in marketing, technology and productive capacity ahead of the final stage of this boom. But conversely, investors should be moving back into defensive fixed income investments as we approach 2010, and businesses should attempt to maximize market share by 2010 and not over-invest in capacity in the late stages of this next boom. "
and went on to say;
"In fact, businesses should decide whether to cash out and sell around the end of this decade, or use their dominant market share positions gained in the boom to further increase their dominance and/or buy-out their competitors in the bust – thereby preparing for the next boom to come from the echo boom generation from 2023 into around 2050. Europe and most of the developed world will follow us into this next demographic downturn. But Asia will still be booming for years and decades to come after the initial crash that is likely to set in between late 2010 and early 2013. Sectors that benefit from older consumers, like health care, will also boom after the initial crash in stock prices. "
I agree with Mr. Dents premise on demographic trends however, I think the markets will change to suit the new trends. I think the following will happen;
1) Stocks will begin increasing dividends as investors demand income over growth. This explains why income trusts became so popular so quickly. Company's will turn into "Cash Machines"
2) Investors will demand tax changes that make dividends tax deductible to a corporation but fully taxable in the hands of the investor (retiree) just like interest payments. This will drive stock valuations up.
3) Workers will continue working past 65 years old thus slowing the propensity to sell stocks.
4) Corporations will find creative ways to satisfy investor requirements of investing for income.
5) Home prices will be under more selling pressure than stocks as retirees cash out to pay for living expenses and purchase income producing assets such as stocks.
My strategy is to keep on acquiring income producing assets so that I can enjoy a rich life with passive income.
He goes on to say;
"We are forecasting that the U.S. economy (and the global economy) will continue to boom into around 2010 before experiencing an extended slowdown into 2023. Stock prices are likely to peak by late 2009 or 2010 and then bottom around late 2022 or so. The Dow could reach 25,000 and the Nasdaq could surpass its old high above 5,000 before the end of the decade when this boom ends. Investors should be moving back into equities, and businesses should be investing in marketing, technology and productive capacity ahead of the final stage of this boom. But conversely, investors should be moving back into defensive fixed income investments as we approach 2010, and businesses should attempt to maximize market share by 2010 and not over-invest in capacity in the late stages of this next boom. "
and went on to say;
"In fact, businesses should decide whether to cash out and sell around the end of this decade, or use their dominant market share positions gained in the boom to further increase their dominance and/or buy-out their competitors in the bust – thereby preparing for the next boom to come from the echo boom generation from 2023 into around 2050. Europe and most of the developed world will follow us into this next demographic downturn. But Asia will still be booming for years and decades to come after the initial crash that is likely to set in between late 2010 and early 2013. Sectors that benefit from older consumers, like health care, will also boom after the initial crash in stock prices. "
I agree with Mr. Dents premise on demographic trends however, I think the markets will change to suit the new trends. I think the following will happen;
1) Stocks will begin increasing dividends as investors demand income over growth. This explains why income trusts became so popular so quickly. Company's will turn into "Cash Machines"
2) Investors will demand tax changes that make dividends tax deductible to a corporation but fully taxable in the hands of the investor (retiree) just like interest payments. This will drive stock valuations up.
3) Workers will continue working past 65 years old thus slowing the propensity to sell stocks.
4) Corporations will find creative ways to satisfy investor requirements of investing for income.
5) Home prices will be under more selling pressure than stocks as retirees cash out to pay for living expenses and purchase income producing assets such as stocks.
My strategy is to keep on acquiring income producing assets so that I can enjoy a rich life with passive income.
Tuesday, October 9, 2007
Hedging Our Bets on Investing for Income Between Credit and Inflation Risk
Condensed Version of
HEDGING OUR BETS
by Roger Conrad
Editor, Utility & Income
October 9, 2007
Income investments come in all shapes and sizes. But all have one thing in common as far as we’re concerned: We’ve got to buy and hold ‘em to get the most out of them.
Part of that is axiomatic. You can’t collect the distributions unless you stick around for them to be paid. Individual bonds are the exception because they accrue interest as long as you hold them. But as far as stocks, Canadian trusts, limited partnerships, income-paying funds, preferred stocks or anything else goes, you’ve got be in there on the ex-dividend dates or you won’t get paid.
Ironically, the most important reason income investors need to buy and hold is capital appreciation. A healthy, growing company will increase its dividend over time, and its share price will follow. If you’re trading, you won’t get that gain unless you’re very, very lucky.
Buying and holding, of course, isn’t without risks. For income investors, there are basically two: credit risk and inflation risk.
The former has been on investors’ minds this year. And virtually anything perceived as having too much debt—or too unorthodox a capital structure—has taken hits.
There are two ways to protect your portfolio against credit risk. One is by sticking only to high-quality, growing companies and shedding anything where the business fundamentals are weakening. The other is to diversify broadly, both in terms of individual stocks you hold and across market sectors.
When the markets are universally panicked about recession or a credit crunch, big institutional money will pretty much sell off anything that doesn’t have the word “Treasury” in it. And that’s exactly what happened on the worst days over the summer.
The key in a market like that is to avoid the real blowups, i.e., the companies that are really in trouble. This time around, that was basically financial companies that had gotten in really deep in the mortgage market and/or collateralized debt obligations. As JP MORGAN CHASE’S $5.5 billion writeoff announced today illustrates, there are still some landmines in this area, though that stock is actually up today.
In contrast, damage to most other income investments in recent months was largely because of guilt by association. Limited partnerships (LPs), for example, were walloped by concerns about their debt structures and whether or not they’d be able to access capital markets. Both fears have proven largely groundless, at least for the best quality LPs. As a result, money is starting to flow back in and shares are recovering.
The lesson: If you avoid the blowups in an environment of elevated credit risk, your losses will be short-lived. In fact, such times are golden opportunities to buy high-quality income stocks cheaply.
THE GREATER RISK NOW IS INFLATION - ESPECIALLY IN THE USA
The bottom line is, if you pick your stocks carefully, diversify well, shed holdings that weaken business-wise and are willing to be patient in downturns, you can make your income portfolio pretty much foolproof against credit risk.
Guarding against inflation risk, however, is a whole other matter. Income-oriented investments are especially vulnerable to inflation because they’re valued to a large extent on the basis of yield. Rising inflation pushes market interest rates higher, which makes those yields worth relatively less. As a result, income-oriented investments sell off to a point where yields are again attractive.
During the 1970s, Treasury bonds were among the absolute worst investments to own. Credit risk was zero.
But every incremental increase in inflation made investors demand a higher yield to compensate for the erosion of principal. And by the time inflation peaked in the late ’70s and early ’80s, bonds issued at the lower rates of the ’60s had lost most of their real value.
We haven’t had a real inflation problem in the US since those bad old days. We have, however, had occasional flare-ups that have wreaked havoc on everything from REITs to utilities.
In each of the past five years, we’ve had a spring or summer spike in interest rates, as investors have anticipated faster growth and higher inflation. The benchmark 10-year Treasury note yield spiked, and income investments across the board sold off. Each time—including this year—rising rates sowed the seeds of their own reversal, sparking worries about the economy and ultimately sending them lower.
As we move into the fourth quarter, rates are down and credit worries are receding. As a result, income investments are starting to recover their summer losses. That rally should continue throughout the fourth quarter. Utility stocks, for example, have had a positive fourth quarter in 35 of the last 40 years.
After that, however, the future gets considerably cloudier. With the Federal Reserve apparently willing to do whatever it takes to avoid recession, credit risk is no longer the primary concern. Rather, it’s inflation. And the more money the Fed and other world central banks pour into the system now to bail out the likes of JP Morgan, the greater the risk.
One way income investors can protect themselves against inflation is healthy growth. Not even companies that can grow dividends reliably and robustly have historically been able to hold their share value in the face of rapid inflation. But they do a credible job with moderate inflation, if for no other reason than investors need to get their income from somewhere.
How bad can inflation get this time is the $1 million question. And as is always the case with market economics, that’s impossible to forecast.
What we do know, however, is there are investments that pay moderate income and actually do very well in inflationary environments. By adding them to already diversified portfolios, we can cut the inflation risk to our overall portfolios.
What I’m talking about are metals and other vital resources. Over the past five years or so, many of the raw commodities—from copper to zinc—have doubled and tripled in value. The primary reason is global growth.
Not since the ’70s has the world seen such robust, synchronized economic growth. And unlike then, the US isn’t the only driver of growth this time around.
We’re still the most important economy. But China, Japan, Europe, India and the Middle East are also driving things. That makes this growth wave a lot more durable than the last one. In other words, a US recession would no doubt slow things down, but it wouldn’t derail global growth as it did in the early ’80s.
Metals and other raw commodities are the essential fuel for global growth. And the faster and more universal growth is, the greater the strain on supplies. Already, we’ve seen Russia plant its flag on the North Pole, while China and Europe are snuggling up to African dictators and the regime in Iran. And that’s only the beginning, as competition for scarce resources grows.
Eventually, every commodity cycle ends. Ever-rising prices induce consumers to change their habits and develop alternatives, even as they incentivize new discoveries. The process, however, can take years and even decades before the supply/demand balance shifts back in favor of consumers, and it’s never entirely painless.
One of the hallmarks of a top in a commodity cycle is breathless speculation that supplies are truly running out. I’m not hearing any of that now in the financial media.
In fact, the buzz is largely about how the commodity bull has reached unsustainable levels and that its days are numbered. This is in stark contrast to what’s happening in the market place, and the disconnect likely points to a lot more ahead.
Commodities and vital resources are good inflation hedges for one major reason: They represent hard value. Gold, for example, has been a global store of value for millennia. When US inflation undermines the value of paper money, gold holds its own—mainly by surging in US dollar terms.
The best way to play a boom in commodities and vital resources is to buy stocks of the companies that produce them. For one thing, gains are leveraged. For example, a company producing copper at a total cost of $1 a pound will see its earnings double if the metal moves from $2 a pound to $3 a pound—a 50 percent gain in the metal itself. And good companies are always growing, providing a rising base of earnings.
I’ve already been talking about high-yielding energy bets like Canadian trusts, Super Oils and combination utility/producers for some time. We’ve seen some staggering profits in these over the past five years or so. And until we see the factors that ended the ’70s energy bull market in abundance—greater conservation, switching to alternatives (not biofuels), new conventional reserve discoveries (not from oil sands or extreme deepwater drilling) and a global recession—we’re going to see a lot more gains.
The takeover offer for Canadian trust PRIMEWEST ENERGY TRUST by the ABU DHABI NATIONAL ENERGY CO—which was at nearly a 40 percent premium to the pre-deal price—is a pretty clear value alert for that sector. And whether it means takeover for the likes of other strong trusts like Enerplus Resources or Penn West Energy Trust or not, it does add up to big gains ahead for the best trusts, in addition to their high distributions.
Energy is only one resource that offers income investors an inflation hedge.
HEDGING OUR BETS
by Roger Conrad
Editor, Utility & Income
October 9, 2007
Income investments come in all shapes and sizes. But all have one thing in common as far as we’re concerned: We’ve got to buy and hold ‘em to get the most out of them.
Part of that is axiomatic. You can’t collect the distributions unless you stick around for them to be paid. Individual bonds are the exception because they accrue interest as long as you hold them. But as far as stocks, Canadian trusts, limited partnerships, income-paying funds, preferred stocks or anything else goes, you’ve got be in there on the ex-dividend dates or you won’t get paid.
Ironically, the most important reason income investors need to buy and hold is capital appreciation. A healthy, growing company will increase its dividend over time, and its share price will follow. If you’re trading, you won’t get that gain unless you’re very, very lucky.
Buying and holding, of course, isn’t without risks. For income investors, there are basically two: credit risk and inflation risk.
The former has been on investors’ minds this year. And virtually anything perceived as having too much debt—or too unorthodox a capital structure—has taken hits.
There are two ways to protect your portfolio against credit risk. One is by sticking only to high-quality, growing companies and shedding anything where the business fundamentals are weakening. The other is to diversify broadly, both in terms of individual stocks you hold and across market sectors.
When the markets are universally panicked about recession or a credit crunch, big institutional money will pretty much sell off anything that doesn’t have the word “Treasury” in it. And that’s exactly what happened on the worst days over the summer.
The key in a market like that is to avoid the real blowups, i.e., the companies that are really in trouble. This time around, that was basically financial companies that had gotten in really deep in the mortgage market and/or collateralized debt obligations. As JP MORGAN CHASE’S $5.5 billion writeoff announced today illustrates, there are still some landmines in this area, though that stock is actually up today.
In contrast, damage to most other income investments in recent months was largely because of guilt by association. Limited partnerships (LPs), for example, were walloped by concerns about their debt structures and whether or not they’d be able to access capital markets. Both fears have proven largely groundless, at least for the best quality LPs. As a result, money is starting to flow back in and shares are recovering.
The lesson: If you avoid the blowups in an environment of elevated credit risk, your losses will be short-lived. In fact, such times are golden opportunities to buy high-quality income stocks cheaply.
THE GREATER RISK NOW IS INFLATION - ESPECIALLY IN THE USA
The bottom line is, if you pick your stocks carefully, diversify well, shed holdings that weaken business-wise and are willing to be patient in downturns, you can make your income portfolio pretty much foolproof against credit risk.
Guarding against inflation risk, however, is a whole other matter. Income-oriented investments are especially vulnerable to inflation because they’re valued to a large extent on the basis of yield. Rising inflation pushes market interest rates higher, which makes those yields worth relatively less. As a result, income-oriented investments sell off to a point where yields are again attractive.
During the 1970s, Treasury bonds were among the absolute worst investments to own. Credit risk was zero.
But every incremental increase in inflation made investors demand a higher yield to compensate for the erosion of principal. And by the time inflation peaked in the late ’70s and early ’80s, bonds issued at the lower rates of the ’60s had lost most of their real value.
We haven’t had a real inflation problem in the US since those bad old days. We have, however, had occasional flare-ups that have wreaked havoc on everything from REITs to utilities.
In each of the past five years, we’ve had a spring or summer spike in interest rates, as investors have anticipated faster growth and higher inflation. The benchmark 10-year Treasury note yield spiked, and income investments across the board sold off. Each time—including this year—rising rates sowed the seeds of their own reversal, sparking worries about the economy and ultimately sending them lower.
As we move into the fourth quarter, rates are down and credit worries are receding. As a result, income investments are starting to recover their summer losses. That rally should continue throughout the fourth quarter. Utility stocks, for example, have had a positive fourth quarter in 35 of the last 40 years.
After that, however, the future gets considerably cloudier. With the Federal Reserve apparently willing to do whatever it takes to avoid recession, credit risk is no longer the primary concern. Rather, it’s inflation. And the more money the Fed and other world central banks pour into the system now to bail out the likes of JP Morgan, the greater the risk.
One way income investors can protect themselves against inflation is healthy growth. Not even companies that can grow dividends reliably and robustly have historically been able to hold their share value in the face of rapid inflation. But they do a credible job with moderate inflation, if for no other reason than investors need to get their income from somewhere.
How bad can inflation get this time is the $1 million question. And as is always the case with market economics, that’s impossible to forecast.
What we do know, however, is there are investments that pay moderate income and actually do very well in inflationary environments. By adding them to already diversified portfolios, we can cut the inflation risk to our overall portfolios.
What I’m talking about are metals and other vital resources. Over the past five years or so, many of the raw commodities—from copper to zinc—have doubled and tripled in value. The primary reason is global growth.
Not since the ’70s has the world seen such robust, synchronized economic growth. And unlike then, the US isn’t the only driver of growth this time around.
We’re still the most important economy. But China, Japan, Europe, India and the Middle East are also driving things. That makes this growth wave a lot more durable than the last one. In other words, a US recession would no doubt slow things down, but it wouldn’t derail global growth as it did in the early ’80s.
Metals and other raw commodities are the essential fuel for global growth. And the faster and more universal growth is, the greater the strain on supplies. Already, we’ve seen Russia plant its flag on the North Pole, while China and Europe are snuggling up to African dictators and the regime in Iran. And that’s only the beginning, as competition for scarce resources grows.
Eventually, every commodity cycle ends. Ever-rising prices induce consumers to change their habits and develop alternatives, even as they incentivize new discoveries. The process, however, can take years and even decades before the supply/demand balance shifts back in favor of consumers, and it’s never entirely painless.
One of the hallmarks of a top in a commodity cycle is breathless speculation that supplies are truly running out. I’m not hearing any of that now in the financial media.
In fact, the buzz is largely about how the commodity bull has reached unsustainable levels and that its days are numbered. This is in stark contrast to what’s happening in the market place, and the disconnect likely points to a lot more ahead.
Commodities and vital resources are good inflation hedges for one major reason: They represent hard value. Gold, for example, has been a global store of value for millennia. When US inflation undermines the value of paper money, gold holds its own—mainly by surging in US dollar terms.
The best way to play a boom in commodities and vital resources is to buy stocks of the companies that produce them. For one thing, gains are leveraged. For example, a company producing copper at a total cost of $1 a pound will see its earnings double if the metal moves from $2 a pound to $3 a pound—a 50 percent gain in the metal itself. And good companies are always growing, providing a rising base of earnings.
I’ve already been talking about high-yielding energy bets like Canadian trusts, Super Oils and combination utility/producers for some time. We’ve seen some staggering profits in these over the past five years or so. And until we see the factors that ended the ’70s energy bull market in abundance—greater conservation, switching to alternatives (not biofuels), new conventional reserve discoveries (not from oil sands or extreme deepwater drilling) and a global recession—we’re going to see a lot more gains.
The takeover offer for Canadian trust PRIMEWEST ENERGY TRUST by the ABU DHABI NATIONAL ENERGY CO—which was at nearly a 40 percent premium to the pre-deal price—is a pretty clear value alert for that sector. And whether it means takeover for the likes of other strong trusts like Enerplus Resources or Penn West Energy Trust or not, it does add up to big gains ahead for the best trusts, in addition to their high distributions.
Energy is only one resource that offers income investors an inflation hedge.
Picked up 1,000 Shares of Verenex Energy Today
I picked up 1,000 shares of Verenex Energy today at $13.08 per share.
It only trades on the TSX under the symbol VNX-T.
It only trades on the TSX under the symbol VNX-T.
How I Lost it All in the stock Market
This is a reprint of a letter sent to us in 2003. Its as relevant today as it was then.
-----------------------------------------------------------------------
February 2, 2003
To: investingforincome.com
From: DRG
Finally someone agrees with me or better me with them!
I have been playing around in the marked for more than 25 years. I made some I lost some . I lost my whole house on a stock (Abacus) of a company who was building the Edmonton shopping mall. At the recommendation of my broker who was very friendly to me (he bought me coffee quiet often) I borrowed as much money as I could to buy the said stock.
Now, he worked for a reputable brokerage house, so I felt fairly good about my investment. I had 2000 shares @5.00 a piece. Thats what my house was worth in the early 70's. My broker told me he knows the people who were running the company, don't worry. Well the stock kept sinking and sinking. I questioned him (over another cup of coffee) what is the meaning of all of this. O, all stocks fluctuate up and down, he said. I figured, he should know, he is the "professional", and I don't know anything. When they dropped to 40 cents I asked him: "Don't you think I should buy some more, after all that is a excellent stock , is it not"? He hesitated and said, "well, I think, you got enough, lets not become greedy". I got him to buy me another 3,000 @ 45 cents, anyway. What a good average I had achieved, I was so proud of myself.
A little while after that, I turned on the TV and I heard the word Abacus.-- Close to bankrupt.-- I was sick, and yes I lost the whole works. I paid my house off a second time and left the market alone until 15 years later. In time the broker had been ?invited to court?, but left the country instead.
O'how I missed my coffee. I had to think of retirement and managed to get a couple houses to rent out. A friend told me about income producing stocks (units). I have never looked back since. I borrowed again from the bank, a house worth. As of today my holdings are $ 250,690 and I got paid at for January 2003 a total of $3,470. That is twice as good as getting rent, even after paying almost a $1,000 to the bank, and the interest to the bank is deductible. No houses to fix up, no painting, no complaints.
Sure I still have some property, diversification is good, but as far as income is concerned, you can't beat the income funds. When I got your e-mail (from a friend) about the different recommendations I was glad to see that those were exactly my choices for the last three years. It feels good to see that I finally got paid back from the school of hard knocks. I hope it lasts for a while.
DRG
-----------------------------------------------------------------------
February 2, 2003
To: investingforincome.com
From: DRG
Finally someone agrees with me or better me with them!
I have been playing around in the marked for more than 25 years. I made some I lost some . I lost my whole house on a stock (Abacus) of a company who was building the Edmonton shopping mall. At the recommendation of my broker who was very friendly to me (he bought me coffee quiet often) I borrowed as much money as I could to buy the said stock.
Now, he worked for a reputable brokerage house, so I felt fairly good about my investment. I had 2000 shares @5.00 a piece. Thats what my house was worth in the early 70's. My broker told me he knows the people who were running the company, don't worry. Well the stock kept sinking and sinking. I questioned him (over another cup of coffee) what is the meaning of all of this. O, all stocks fluctuate up and down, he said. I figured, he should know, he is the "professional", and I don't know anything. When they dropped to 40 cents I asked him: "Don't you think I should buy some more, after all that is a excellent stock , is it not"? He hesitated and said, "well, I think, you got enough, lets not become greedy". I got him to buy me another 3,000 @ 45 cents, anyway. What a good average I had achieved, I was so proud of myself.
A little while after that, I turned on the TV and I heard the word Abacus.-- Close to bankrupt.-- I was sick, and yes I lost the whole works. I paid my house off a second time and left the market alone until 15 years later. In time the broker had been ?invited to court?, but left the country instead.
O'how I missed my coffee. I had to think of retirement and managed to get a couple houses to rent out. A friend told me about income producing stocks (units). I have never looked back since. I borrowed again from the bank, a house worth. As of today my holdings are $ 250,690 and I got paid at for January 2003 a total of $3,470. That is twice as good as getting rent, even after paying almost a $1,000 to the bank, and the interest to the bank is deductible. No houses to fix up, no painting, no complaints.
Sure I still have some property, diversification is good, but as far as income is concerned, you can't beat the income funds. When I got your e-mail (from a friend) about the different recommendations I was glad to see that those were exactly my choices for the last three years. It feels good to see that I finally got paid back from the school of hard knocks. I hope it lasts for a while.
DRG
Monday, October 8, 2007
Freehold Royalty Trust is Another Buy and Hold Security that Yields 11.70%
Freehold Royalty Trust - Symbol: FRU.un on the TSX
My 12 month target is CDN $16.00 /unit
Freehold Royalty Trust is roughly 65% weighted to oil, which will protect it from variation in natural gas prices.
It has a Low level of foreign ownership and a strong balance sheet.
Its presently trading at $15.39 per unit. It pays a $0.15 distribution per month ($1.80 per year) which results in a yield of 11.70%.
You won't get rich with this one but you won't go broke either.
The Yield fits nicely into our investing for income strategy. I feel this is a buy and hold type of security.
I don't own any units at this time.
My 12 month target is CDN $16.00 /unit
Freehold Royalty Trust is roughly 65% weighted to oil, which will protect it from variation in natural gas prices.
It has a Low level of foreign ownership and a strong balance sheet.
Its presently trading at $15.39 per unit. It pays a $0.15 distribution per month ($1.80 per year) which results in a yield of 11.70%.
You won't get rich with this one but you won't go broke either.
The Yield fits nicely into our investing for income strategy. I feel this is a buy and hold type of security.
I don't own any units at this time.
Arc Energy Trust is a Great Buy and Hold Income Producing Security
ARC Energy Trust - Symbol: AET.un on the TSX
My Target is CDN $22.50/unit over the next 12 months
ARC's assets are diversified throughout the Western Canadian Sedimentary Basin and production is balanced between oil and natural gas.
One of the more attractive investments in the Canadian royalty trust sector due to asset quality and longevity, an experienced management team and reasonable valuation relative to the peer group. Arc is a favourite of the institutional investors.
Arc has small production growth potential with Carbon Dioxide flooding in the old fields. I suspect that some of the "socially responsible" and "green" funds may use this as a rationalization to acquire units.
Arc Energy trust is trading at $21.70 and pays $0.20 per month ($2.40 per year) yielding 11.6%.
I don't have any units at this time.
My Target is CDN $22.50/unit over the next 12 months
ARC's assets are diversified throughout the Western Canadian Sedimentary Basin and production is balanced between oil and natural gas.
One of the more attractive investments in the Canadian royalty trust sector due to asset quality and longevity, an experienced management team and reasonable valuation relative to the peer group. Arc is a favourite of the institutional investors.
Arc has small production growth potential with Carbon Dioxide flooding in the old fields. I suspect that some of the "socially responsible" and "green" funds may use this as a rationalization to acquire units.
Arc Energy trust is trading at $21.70 and pays $0.20 per month ($2.40 per year) yielding 11.6%.
I don't have any units at this time.
Sunday, October 7, 2007
Why Baytex Energy Trust is One of My Top Picks
While Baytex’s Q2 financial results were impacted by higher costs and lower realized heavily oil prices, we were encouraged by the solid production numbers. In particular, development of its Seal heavy oil asset is progressing well.
Unlike some other operators in the area that are having inconsistent results from new wells, all of Baytex’s Seal wells continue to meet expectations. The lack of infrastructure is constraining major development at the property due to high transportation costs, but infrastructure investment by other operators appears to be ramping up.
I believe that as development of Seal progresses, further value will be attributed to the asset and reflected in the trust’s unit price. Furthermore, the Seal heavy oil reserves could he worth over $40 a share to a major Oil company like Shell.
In the meantime Baytex is paying out $0.18 per month ($2.16 per year) for a yield of just under 12% while you wait for the big buyout offer.
Now that's investing for income at its best!
Unlike some other operators in the area that are having inconsistent results from new wells, all of Baytex’s Seal wells continue to meet expectations. The lack of infrastructure is constraining major development at the property due to high transportation costs, but infrastructure investment by other operators appears to be ramping up.
I believe that as development of Seal progresses, further value will be attributed to the asset and reflected in the trust’s unit price. Furthermore, the Seal heavy oil reserves could he worth over $40 a share to a major Oil company like Shell.
In the meantime Baytex is paying out $0.18 per month ($2.16 per year) for a yield of just under 12% while you wait for the big buyout offer.
Now that's investing for income at its best!
Friday, October 5, 2007
Can I generate $15,000 per Month Income?
Can I generate $15,000 per Month Income?
On November 1, 2006 I had major losses from the Canadian Government's about face decision to tax income trusts. I stayed up night after night worrying. Have any of you stayed up all night worrying? Have any of you had insomnia positions that threatened your sleep that destroyed your relationships and eroded your self-esteem? I have and I can tell you right now that holding and hoping is a recipe for disaster, both financially and personally.
I finally sold out on November 15, 2006 and reinvested my remaining funds in SDT.Un and EIT.UN. These are still my largest holdings.
Just because my income investments got clobbered does not mean that the underlying investment philosophy of investing for income is wrong.
I plan on rebuilding my income portfolio and I plan to share my experience with you in the coming months and years.
My Goal is to generate $15,000 per month income net of intererst costs and taxes.
Stay tuned.
On November 1, 2006 I had major losses from the Canadian Government's about face decision to tax income trusts. I stayed up night after night worrying. Have any of you stayed up all night worrying? Have any of you had insomnia positions that threatened your sleep that destroyed your relationships and eroded your self-esteem? I have and I can tell you right now that holding and hoping is a recipe for disaster, both financially and personally.
I finally sold out on November 15, 2006 and reinvested my remaining funds in SDT.Un and EIT.UN. These are still my largest holdings.
Just because my income investments got clobbered does not mean that the underlying investment philosophy of investing for income is wrong.
I plan on rebuilding my income portfolio and I plan to share my experience with you in the coming months and years.
My Goal is to generate $15,000 per month income net of intererst costs and taxes.
Stay tuned.
Top Pick Verenex Energy VNX-T Presently Trading at $12.30 with a 2008 target of $18
Verenex Energy (VNX-T) is 45% owned by Vermilion Energy Trust(VET.UN-T). They are drilling in Libya. Drilled 2 wells so far. The first one flowed 10,000 BOE a day and the second flowed 20,000 BOE.
Verenex hit an all time high in August of $17.63 but has pulled back considerably since the ORCA well drilled by Bordeux Energy (BDO-X) off the coast of France (they had a 30% interest) came up dry.
I normally only accumulate dividend paying stocks and stay away from risky stocks such as Verenex because its purely an oil exploration play in Libya. However, they have struck oil and I expect that in in 2008 Verenex will also become a production company too. Once this happens it will attract different investors and valuations.
I feel that it will reach $18 by the end of 2008.
I picked up 2,000 shares.
Please do your own due dilligence before acquiring any securities.
Verenex hit an all time high in August of $17.63 but has pulled back considerably since the ORCA well drilled by Bordeux Energy (BDO-X) off the coast of France (they had a 30% interest) came up dry.
I normally only accumulate dividend paying stocks and stay away from risky stocks such as Verenex because its purely an oil exploration play in Libya. However, they have struck oil and I expect that in in 2008 Verenex will also become a production company too. Once this happens it will attract different investors and valuations.
I feel that it will reach $18 by the end of 2008.
I picked up 2,000 shares.
Please do your own due dilligence before acquiring any securities.
Thursday, October 4, 2007
Natural Gas and Oil Prices Showing Unexpected Strength
Crude Oil
After 4 days of losses, crude roared back to move into positive territory. Backs were even stronger up $1.70+ in most terms. Products were also up sharply. There was not a lot of bullish news to prompt the move though the USD was marginally weaker. Rather, this appears more technical in nature: the market tested but held support just under $79.00 which has encouraged funds to jump back in for a move higher again.
Natural Gas
Today's 57 BCF injection was bullish vs. expectations that were largely around 65 BCF. Beyond that, the trend of injections has been supportive: since 2000 the average injection for the past six weeks has been 73 BCF, this year we have average 56 BCF. We remain near all time records but have been losing ground. Meanwhile, with the weekend looming and a (weak) storm in the Gulf some more strength may be in order. Liquefied Natural Gas imports have slowed to under 1 BCF per day. if this keeps up natural gas prices should continue to strengthen.
After 4 days of losses, crude roared back to move into positive territory. Backs were even stronger up $1.70+ in most terms. Products were also up sharply. There was not a lot of bullish news to prompt the move though the USD was marginally weaker. Rather, this appears more technical in nature: the market tested but held support just under $79.00 which has encouraged funds to jump back in for a move higher again.
Natural Gas
Today's 57 BCF injection was bullish vs. expectations that were largely around 65 BCF. Beyond that, the trend of injections has been supportive: since 2000 the average injection for the past six weeks has been 73 BCF, this year we have average 56 BCF. We remain near all time records but have been losing ground. Meanwhile, with the weekend looming and a (weak) storm in the Gulf some more strength may be in order. Liquefied Natural Gas imports have slowed to under 1 BCF per day. if this keeps up natural gas prices should continue to strengthen.
Wednesday, October 3, 2007
Goldman Sachs on the Marginal Price of Oil Being Over $70 Per Barrell
Last night I picked up comments on the Investors Village CWEI board comments on the latest Goldman Sachs report on oil. I felt I should share this report with you. If Goldman Sachs is right then our income investing philosophy will be rewarded because some of the largest dividend paying investments are related to the oil and gas industry.
However, I caution readers on Canadian Oil and Gas Trusts because they are more sensitive to Natural gas prices (except Canadian Oil Sands Trust) and unless the oil:gas ratio improves along with the rising price of oil then the Canroys will continue to struggle.
The Goldman Sachs report talks about a lot of the issues we've discussed. Most interestingly, they believe that the long-term price of oil is determined by the marginal cost of oil production. Marginal cost is defined as the average of the highest cost (or bottom quartile) producers. Their study concludes that marginal costs are now close to $70/bbl. Furthermore, there are no more than 4 million b/d of current production that have a cost greater than $70/bbl, meaning 4 million b/d of extra capacity costing under $70/bbl to bring the long-date price down.
The report is the best I've read. It is the most technical, most numbers based. I've included a couple quotes below. I think oil is going down over the next few days as the dollar has a little bit of a rally here. If it goes down enough, I might add to my already significant positions in preparation for what could end up being a long, hard winter.
Excerpts from the report;
"In July, we argued that a significant increase in Saudi Arabian, Kuwaiti and UAE production by the end of the summer was critical to avoid prices spiking above $90/bbl this autumn. Last week, OPEC announced that it would increase production by only 500 thousand b/d by November 1. We believe that this will be too little, too late, baring an outright collapse in demand, and now expect inventories to draw to critical levels this winter."
"Despite only modest demand growth this past year, anaemic oil supply growth, due to disappointing non-OPEC supply increases and OPEC production cuts, has pushed the market into a significant deficit, which pushed the oil forward curves back into backwardation, creating the first cyclical bull market since 2003 that will likely carry into 2008."
"The current structural bull market, or investment phase, has entered its sixth year; however, the industry has added very little new, low-cost, production capacity as it has run into technological and political bottlenecks that will likely take years to resolve, supporting our view that the investment phase will likely last another five to 10 years. Further, costs have continued to rise, pushing marginal costs closer to $70/bbl, leading us to raise our 5-year forward WTI forecast to $70.00/bbl from $67.50/bbl... "
"Crude oil production during these summer months was nearly 1.0 million b/d below the level a year ago, while demand was averaging more than 1.0 million b/d higher than the level a year ago. This sharp imbalance prevented the normal seasonal build in inventories and has even set the stage for a third quarter draw on stocks, which is a rare event typically associated with significant winter spikes... "
"Net, we now expect inventories to decline by 1.5 million b/d during the fourth quarter versus a seasonal norm of 0.5 million b/d, which will likely cause prices to spike above $90/bbl this winter as inventories are drawn down near critical levels. It is important to emphasize that the current market deficit is being driven more by supply shortages than by excess demand, which is why upside price risks are so high despite significant economic growth concerns. We estimate that during the fourth quarter, demand growth would need to be 1.0 million b/d below our forecast, nearly 1.25%, to create a balanced market with a normal fourth quarter draw of 0.5 million b/d... "
"Given the inability of non-OPEC producers to significantly expand conventional production, we have argued for some time that oil at the margin is no longer pricing conventional oil but rather non-conventional oil such as synthetic crude oil, renewable fuels, and synthetic fuels... "
"1. The energy, water, and labour bottlenecks in the Canadian tar sands are severe and will likely prevent significant scaling up of the supplies at an oil price of $70/bbl, while a substantial change in Canadian policies in order to incentivise the use of nuclear power in tar sands production, and facilitate immigration of much needed foreign engineers appears unlikely in the near term;
"2. The nationalization of the Orinoco belt assets by Venezuela has led to a sharp decline in non-conventional output and no further foreign input of capital;
"3. Biofuel production has substantially driven up agriculture prices, pushing the subsidized cost of many of these fuels anywhere from $65/bbl to $150/bbl with a further scale-up likely to push agriculture prices even higher and hence raise biofuel production costs;
"4. ExxonMobil abandoned its gas-to-liquids (GTL) project due to high costs, the Sasol GTL plant in Qatar has run into technical problems in the ramp-up phase, and the Shell GTL project is significantly over budget, all of which suggest that GTL is off the table at an oil price of $70/bbl...
"If OPEC wishes to push the long-dated oil price down, it would need to offset almost all of the high cost production. However, as the group only has 2.0 to 3.0 b/d of spare capacity at most, it cannot displace the high cost production that supports the long-dated oil price. Instead, it can only control inventory levels, which ultimately controls curve shape..."
"Over the past five years, volumetric exports from the (Gulf Cooperation Council) region have been flat as demand growth has absorbed all of the supply growth..."
"If Saudi Arabia, UAW, and Kuwait ramp production up by 1.0 million b/d, the world would be left with very little spare capacity, which is politically dangerous for the GCC countries as they would have less of a negotiating position that the spare capacity provides, and would be economically dangerous for the consumer countries."
However, I caution readers on Canadian Oil and Gas Trusts because they are more sensitive to Natural gas prices (except Canadian Oil Sands Trust) and unless the oil:gas ratio improves along with the rising price of oil then the Canroys will continue to struggle.
The Goldman Sachs report talks about a lot of the issues we've discussed. Most interestingly, they believe that the long-term price of oil is determined by the marginal cost of oil production. Marginal cost is defined as the average of the highest cost (or bottom quartile) producers. Their study concludes that marginal costs are now close to $70/bbl. Furthermore, there are no more than 4 million b/d of current production that have a cost greater than $70/bbl, meaning 4 million b/d of extra capacity costing under $70/bbl to bring the long-date price down.
The report is the best I've read. It is the most technical, most numbers based. I've included a couple quotes below. I think oil is going down over the next few days as the dollar has a little bit of a rally here. If it goes down enough, I might add to my already significant positions in preparation for what could end up being a long, hard winter.
Excerpts from the report;
"In July, we argued that a significant increase in Saudi Arabian, Kuwaiti and UAE production by the end of the summer was critical to avoid prices spiking above $90/bbl this autumn. Last week, OPEC announced that it would increase production by only 500 thousand b/d by November 1. We believe that this will be too little, too late, baring an outright collapse in demand, and now expect inventories to draw to critical levels this winter."
"Despite only modest demand growth this past year, anaemic oil supply growth, due to disappointing non-OPEC supply increases and OPEC production cuts, has pushed the market into a significant deficit, which pushed the oil forward curves back into backwardation, creating the first cyclical bull market since 2003 that will likely carry into 2008."
"The current structural bull market, or investment phase, has entered its sixth year; however, the industry has added very little new, low-cost, production capacity as it has run into technological and political bottlenecks that will likely take years to resolve, supporting our view that the investment phase will likely last another five to 10 years. Further, costs have continued to rise, pushing marginal costs closer to $70/bbl, leading us to raise our 5-year forward WTI forecast to $70.00/bbl from $67.50/bbl... "
"Crude oil production during these summer months was nearly 1.0 million b/d below the level a year ago, while demand was averaging more than 1.0 million b/d higher than the level a year ago. This sharp imbalance prevented the normal seasonal build in inventories and has even set the stage for a third quarter draw on stocks, which is a rare event typically associated with significant winter spikes... "
"Net, we now expect inventories to decline by 1.5 million b/d during the fourth quarter versus a seasonal norm of 0.5 million b/d, which will likely cause prices to spike above $90/bbl this winter as inventories are drawn down near critical levels. It is important to emphasize that the current market deficit is being driven more by supply shortages than by excess demand, which is why upside price risks are so high despite significant economic growth concerns. We estimate that during the fourth quarter, demand growth would need to be 1.0 million b/d below our forecast, nearly 1.25%, to create a balanced market with a normal fourth quarter draw of 0.5 million b/d... "
"Given the inability of non-OPEC producers to significantly expand conventional production, we have argued for some time that oil at the margin is no longer pricing conventional oil but rather non-conventional oil such as synthetic crude oil, renewable fuels, and synthetic fuels... "
"1. The energy, water, and labour bottlenecks in the Canadian tar sands are severe and will likely prevent significant scaling up of the supplies at an oil price of $70/bbl, while a substantial change in Canadian policies in order to incentivise the use of nuclear power in tar sands production, and facilitate immigration of much needed foreign engineers appears unlikely in the near term;
"2. The nationalization of the Orinoco belt assets by Venezuela has led to a sharp decline in non-conventional output and no further foreign input of capital;
"3. Biofuel production has substantially driven up agriculture prices, pushing the subsidized cost of many of these fuels anywhere from $65/bbl to $150/bbl with a further scale-up likely to push agriculture prices even higher and hence raise biofuel production costs;
"4. ExxonMobil abandoned its gas-to-liquids (GTL) project due to high costs, the Sasol GTL plant in Qatar has run into technical problems in the ramp-up phase, and the Shell GTL project is significantly over budget, all of which suggest that GTL is off the table at an oil price of $70/bbl...
"If OPEC wishes to push the long-dated oil price down, it would need to offset almost all of the high cost production. However, as the group only has 2.0 to 3.0 b/d of spare capacity at most, it cannot displace the high cost production that supports the long-dated oil price. Instead, it can only control inventory levels, which ultimately controls curve shape..."
"Over the past five years, volumetric exports from the (Gulf Cooperation Council) region have been flat as demand growth has absorbed all of the supply growth..."
"If Saudi Arabia, UAW, and Kuwait ramp production up by 1.0 million b/d, the world would be left with very little spare capacity, which is politically dangerous for the GCC countries as they would have less of a negotiating position that the spare capacity provides, and would be economically dangerous for the consumer countries."
Tuesday, October 2, 2007
Canada Under Seige: Thanks Harper and Flaherty
The Trust tax hoisted onto Canadians is facilitating the transfer of our wealth from Canadians and hard working Americans who invested in our income trusts.
We at investingforincome are not just a bunch of malcontents about getting screwed by our government. But everyone is getting screwed. What is really sad is that part of the reasoning behind the "Tax Fairness" was that our American friends were benefting from the trusts and they called that "tax leakage". Our reflex anti-Americanism has resulted in our wealth being transfered to an Arab government.
Below is a copy of Diane Francis's BLOG on this issue. If you click the title of this post you will be taken to her BLOG.
---------------------------------------------------------------
By Diane Francis
Canadian policies are facilitating the buyout of Canada. Canadian energy trusts are bought with 100% financing borrowed from foreign lenders or entities. Interest payments are made from Canadian cash flow which used to be distributed to trust unitholders and taxable.
The interest payments to foreigners are also exempt from the 15% withholding tax. This means that taxable cash flow has become tax-free mortgage payments to buy energy assets.
Abu Dhabi pounced first and in months will be the biggest oil company in the land, financed in this way by taxpayers. To boot, not one share of its oil entity in Canada, TAQA North, can be owned by a Canadian under Abu Dhabi law.
We at investingforincome are not just a bunch of malcontents about getting screwed by our government. But everyone is getting screwed. What is really sad is that part of the reasoning behind the "Tax Fairness" was that our American friends were benefting from the trusts and they called that "tax leakage". Our reflex anti-Americanism has resulted in our wealth being transfered to an Arab government.
Below is a copy of Diane Francis's BLOG on this issue. If you click the title of this post you will be taken to her BLOG.
---------------------------------------------------------------
By Diane Francis
Canadian policies are facilitating the buyout of Canada. Canadian energy trusts are bought with 100% financing borrowed from foreign lenders or entities. Interest payments are made from Canadian cash flow which used to be distributed to trust unitholders and taxable.
The interest payments to foreigners are also exempt from the 15% withholding tax. This means that taxable cash flow has become tax-free mortgage payments to buy energy assets.
Abu Dhabi pounced first and in months will be the biggest oil company in the land, financed in this way by taxpayers. To boot, not one share of its oil entity in Canada, TAQA North, can be owned by a Canadian under Abu Dhabi law.
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