Income Investing


From the Spring Yield Show

Jeffrey R. Kosnett

Some energy trusts have had spikes in dividends during the warmer months.



Spring brings me the urge to ride my bike without a jacket, hang out on my rooftop deck with a glass of wine and baseball on my portable XM radio player, and scour the markets for high-interest or dividend yields.

Trust me -- the third activity can be as rewarding as the first two.

I don't truly know if spring is a fine time to shop for yields. Stocks have calendar tales: January is reputed to be great for small-company shares, the summer often sees a blue-chip rally, and October is to run and hide because that's when we've had the big crashes.

If there is a seasonal aspect to yields, perhaps you'd expect it to be a winter spike in monthly dividends from energy trusts. But, no, some of my favorites like Enerplus (symbol ERF) and San Juan Basin (SJT) have had years when their distributions were higher in the warmer months. This past winter was an exception because natural gas prices set records, and energy trusts put out bundles of cash. Hold onto those shares if you have any. Utilities buy a lot of gas to generate the power to run air conditioners.

This leads me to two other energy investments: coal and oil sands. Fording Canadian Coal Trust (FDG) is the highest yielding non-utility stock in the Value Line database. In March, it declared a quarterly dividend of $1.40 Canadian, which translates to $1.20 U.S., or $4.80 a year. At $38 on the New York Stock Exchange that's a yield of 12.6%.

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Yet the stock is actually down 10% since a couple of weeks ago, when the company said maybe coal prices have peaked. Well, coal prices could slide a bit, and the dividend here still will be high, even if it falls slightly so that it's still covered by the cash flow.

The record of analyst calls on Fording is a comedy of errors. Analysts have downgraded the shares five times and never upgraded it once since the company's first public offering in 2002. Yet, get this: Fording has returned an average 96% a year the last three years.

Canadian Oil Sands Trust is another one to consider. This isn't easy to buy-- its symbol, for one thing, is COSWF, which means it trades on the "pink sheets" (it's also on the Toronto Stock Exchange but lacks a regular U.S. listing). The Trust owns a 32% interest in Syncrude, the project to turn Alberta's enormous tar sands reserves into sweet crude oil.

Until lately, an investment in this trust was a move to get a foothold in an energy project that will pay off long into the future, little more. But in November, the trust doubled its dividend from 50 Canadian cents a quarter to $1, a rate of 86 cents U.S. or $3.44 a year. If you go to the Web site and read some of the projections and investor presentations, you'll sense that this recent doubling isn't the last.

Canadian trusts are a little inconvenient because Canada withholds part of the dividends and you need to file for a foreign tax credit to recover the money. But this isn't difficult. And, once April 17 passes and you can really concentrate on spring, you can take a few breaths of the brilliant crisp air and toast some really nice dividends.

Opinions expressed in this column are those of the author.




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