Is Canadian withholding and the foreign tax credit the only tax implications facing US based investors? I won't calculate depletion again for a 30% yield. (well, maybe)
As best that I can tell, unless the Canadian Gov changes things again, US/foreign investors are only subject to a 15% withholding on the dividend (return on capital). However, US investors can get a tax credit from the IRS for this if it is NOT held inside an IRA or 401K retirement account. In 2011 though the whole thing changes and US investors get smacked for a huge 41.5% "dirty foreigner tax". The Canadians, being only part American get a break and step up to a 31.5% tax. But current prices have discounted that future tax plus a whole lot more so these are a bargain compared to just about any other low to mid risk high yield global security. There are a few "reasonably" low risk US equities where you can get 8%-10% yields (with no foreign withholding tax) but those are getting hard to find and their ability to pay a long term div is dubious. I am still of the general opinion that we could set capital gain appreciation on these CA Trusts that approaches or surpasses the high yields if private equity comes in looking to bottom fish for takeovers and if the FED drops interest rates. There is also a long shot chance (maybe 15%) that the CA gov may amend or reverse this decision when they see the foreign capital fleeing the country and the cost of business skyrockets at a time social spending must increase. I am also not underestimating the power of voter wrath of the average Canadian pensioner who just got his pockets picked nor the power and clout of the huge trust lobby. Convolve all that with the global growth rate, the energy demand, the vulnerability of the oil supply to a great many deliberate or natural disruption calamities & we have a high expectation of increasing natural resource demand and price growth. There is also the potential for some of these trusts to convert to conventional corps and to earn higher price multiples on their stock. In spite of the socialistic tendencies, give all the above I honestly don't know a better bet/investment in a better low risk civilized country on the planet at this time. Time will tell... TS
Jim Cramer (Mad Money) just gave a "mo back" and "bring the trailer" HUGE recommendation for Canadian Trusts tonight! That means millions of Americans will be buying this stuff on the open tomorrow morning. He in particular recommended Canetic Resporces (CNE), Enterra Energy (ENT), Baytex Energy (BTE) and Precision Drilling (PDS ). He even expressed the possibility for a Canadian Gov reversal in the semantic of a "Free Call Option" - which is EXACTLY how I see this play also. I think Canadian Trusts are locked and loaded now to run. TS
Damn, I was wondering why ENT was up so much after hours. I knew I could come here to this thread and find out what was going on. (I wish I had checked here before unloading it though...it's up another 6% from where I sold just a few minutes ago.)
All the CA energy trusts were mostly up today. The S&P/TSX Capped Energy Index (In (^SPTTEN) is a pretty good measure of Canadian Energy Trusts and it was up 2.37% on average today. But if you look at the underlying component trusts some moved very large today. Check out http://ca.finance.yahoo.com/q?s=^SPTTEN for a link to the index and underlyings. ON a personal basis, my total portfolio is up VERY nice today on top of the div yield I just engineered (at what I am hoping I got in at very near the bottom). Some stocks shot up 6%-9% today. Not bad given last year's full S&P return of 4.9% for the entire year lol. My average net weighted average dividend yield across 21 trusts is now at 13.93% (min-max ranges from 4.19% yield for high quality tar-sands to 21.75% for some riskier oil trusts). I think this is going to work out quite nicely and by my calculations my monthly cash flow will cover one of my condos mortgage payments . The nice thing about energy trusts is as cost of living goes up from anticipated energy expense increases one gets more income out of their trust dividend to offset it. Life is good! My only screw up today was missing getting the buy orders off for Baytex Energy (BTE) & Crescent Point Energy (SPGCF) (due to a doctor's exam) and missing those fast price rises later this afternoon. But I think I am definitely getting addicted to high yield and already am turning into a yield slut. This new trust portfolio I just made is a really nice little money machine. Divs are already flowing in from a few I picked up a month ago during pre-bust. But the unrealized capital gains I already have on the post-bust positions gives a very nice little cushion for the anticipated occasional bad geopolitical news and oil price declines as well. The only real negative is these trusts are not marginable and I just cramped my buying power and trading style a wee bit. Maybe we should consider starting a journal of Canadian Trust portfolios and comparing performance with each other so we can weed out the lower quality or slower running ones. TS
I am primarily into PGH. Secondary holdings are AAV, ENT, PWE, and PWI. After the trust bust I went shopping and picked these up. ENT attracted me in particular because of the dividend ... After seeing cramer pump it, this moved the most today to above pre tax pop levels. I decided to sell half my position and take profits. Divvies are nice, but that chart looks like the reserves are declining hard. Didn't bother to research too hard into this when I bought it... PWE and PGH look like some of the strongest by holdings.
Cramer's rec came after the bell. So yesterday's run up across the board in Canadian Trusts was legitimate normal market demand. The real "Cramer Effect" should happen this morning. But I am expecting that what we are seeing is legitimate demand and bargain shopping going on. Its a huge amount of capital that must be absorbed by the market so buying pressure is not going to be large until money transfers out of other lagging sectors. We may see new money come in from US and foreign "Income" funds that have not previously held any off these trusts in great numbers before. If I was a Income Fund Manager with authorization to invest a portion in the global markets I would certainly have to look at these high yield discounted funds for at least 5-10% of my account holdings given the lower yielding alternatives in corporate paper and US bonds etc. I think there also may be some collaboration and goodwill trades going on as well in private. The political fallout in Canada must be huge and there has to be some concern with instability in these financial markets. So I am anticipating that Canadian equity companies among themselves as well as within some business related hedge funds may be swapping discounted equity off the books for tax breaks and for favors (and maybe even some patriotism/national-pride) to capture equity within "the family" so to speak. I don't know if Canada's gov has the ability to jump in with government owned agencies (gov pension funds?) to help moderate the hemorrhaging either but if they do it would save a lot of political skin to get these prices stabilized and headed back up again to put people at ease. Of course this whole thing could have been a government Machiavellian tactic to force Canadian liquidity into Canadian Gov Bonds as they anticipate another round of debt issuance to domestically fund the next round of GDP expansion without relying on foreign money. But I really don't think they are that intelligent nor far sighted. Nonetheless I think prices are going up as emotional energy shifts from the "horror and denial" stage to the "get in quick before the train leaves the station" phase of a market bounce. Globally there is a HUGE problem with global liquidity and the money will flow in the direction of the vacuum. And right now there is a giant sucking sound coming out of Canada. TS