The winters are frigid in Alberta's oil patch, but at least you don't have to grapple with flaky Latin American dictators or despotic Persian Gulf sheikhs. That's one reason Kurt Wulff, a crack independent energy analyst, likes Penn West Energy Trust, a big Canadian oil trust (market value: $10 billion) that listed on the New York Stock Exchange in June under the symbol PWE.
But the main reason Wulff has a buy on Penn West is the stock's lush yield -- 9.5% -- and the company's ability to maintain or increase its dividend by pumping more oil. The stock closed Friday at $39, or nine times the $4.11 per share that Wulff expects Penn West to earn over the next 12 months. Dividends are "qualified" for American investors, meaning the maximum federal income tax rate on them is 15% (the Canadian government withholds 15% of dividends, which Americans can reclaim on their U.S. income taxes).
Canadian oil and gas trusts have greater operational and investment flexibility than the more passively managed American royalty trusts. Wulff notes that Penn West is paying out only 50% to 60% of its cash flow to shareholders. It plows the rest of the capital back into oil exploration and expansion of capacity, which supports the cash distribution.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Wulff counts three sources of potential new oil production for Penn West. First is its extensive holdings of exploratory lands across western Canada. The trust farms out those holdings to drillers and takes a cut of output as royalties. Next is Pembina field of Alberta, Canada's largest conventional oil field. Pembina is mature and depleted from years of primary recovery, but Penn West is applying tertiary recovery technology -- injecting carbon dioxide, a greenhouse gas -- to make the oil flow. Finally, Penn West owns a large amount of land in the Peace River area, one of three main oil sands regions in Alberta. Wulff says that Shell recently paid a rich price for Peace River acreage of a similar size.
One key, of course, is the high price of crude, which makes oil sands and other capital-intensive energy projects in Canada viable. Wulff thinks oil prices are heading higher -- a lot higher. He projects that crude will fetch $150 a barrel by 2010. If he's right, that's bearish for the world economy, but it's bullish for Penn West.
-
The Stoic Retirement: Ancient Wisdom for Today's RealityA "Stoic retirement" doesn't mean depriving yourself. It's a character-based approach to life and aging that can bring calm and clarity.
-
My Teen Crashed His Car and Now Our Insurance Has Tripled. What Now?Dealing with the costly aftermath of a teen car accident is stressful. Here are your options for navigating it.
-
11 Outrageous Ways To Spend Money in RetirementWhether you have excess cash to spend or want to pretend, here’s a look at 11 ridiculous ways retirees can splurge.
-
If You'd Put $1,000 Into Coca-Cola Stock 20 Years Ago, Here's What You'd Have TodayEven with its reliable dividend growth and generous stock buybacks, Coca-Cola has underperformed the broad market in the long term.
-
If You Put $1,000 into Qualcomm Stock 20 Years Ago, Here's What You Would Have TodayQualcomm stock has been a big disappointment for truly long-term investors.
-
If You'd Put $1,000 Into Home Depot Stock 20 Years Ago, Here's What You'd Have TodayHome Depot stock has been a buy-and-hold banger for truly long-term investors.
-
What the Rich Know About Investing That You Don'tPeople like Warren Buffett become people like Warren Buffett by following basic rules and being disciplined. Here's how to accumulate real wealth.
-
If You'd Put $1,000 Into Bank of America Stock 20 Years Ago, Here's What You'd Have TodayBank of America stock has been a massive buy-and-hold bust.
-
If You'd Put $1,000 Into Oracle Stock 20 Years Ago, Here's What You'd Have TodayORCL Oracle stock has been an outstanding buy-and-hold bet for decades.
-
How to Invest for Rising Data Integrity RiskAmid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
If You'd Put $1,000 Into Sherwin-Williams Stock 20 Years Ago, Here's What You'd Have TodaySherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
