Canroys
Canroys are Canadian Royalty funds. The funds were designed as a high yield investment for retired Canadians. But most Canroys were actually owned by Americans who were neither retired nor Canadian. This caused the Canadian governemnt to put the end their preferred tax status.
At this time, most Canadian Royalty funds have been converted into partnerships. This page is maintained here for historical purposes.
2009 Canroy investing
2008 was certainly not a good year for the investor in Canadian Royalty funds (CANROYs). In 2009, the dividend rates became phenomenal. In January 2009,they range from 16% to 40%. I have listed the rates below.CANROY dividend rates
The CANROYS that can be purchased on American stock exchanges are listed in the table below along with their annual dividend rates and their gains since the early November meltdown. Information is current as January 2009. You are encouraged to do your own due dilligence.| CANROY | Symbol | Dividend |
|---|---|---|
| Advantage Energy Income | AAV | 20.8% |
| Baytex Energy Trust | BTE | 16.1% |
| Enerplus Resources Fund | ERF | 14.1% |
| Harvest Energy | HTE | 40.0% | Pengrowth Energy Trust | PGH | 25.2 |
| Penn West Energy Trust | PWE | 31.6 |
| Provident Energy Trust | PVX | 21.6% |
Investing in a Canadian Royalty Trust (CANROY)
Now, I'm sure this is old hat to most of you, but CANROY is a slang expression for Canadian Royalty fund. These funds were designed to provide income, primarily for retired Canadians. Now, I am neither retired nor Canadian, but I found that I was able to invest in CANROYs anyway, so I did. Basically, Canadian corporations could avoid paying corporate taxes if they distributed the profits directly to the shareholders.
Oil and gas drilling
Most of the CANROYS were traditionally companies that drilled for natural gas and oil. Unlike their Amercian counterparts, Canadian companies may acquire new properties,so they can perpetuate themselves indefinitely.
Oil and gas are not the only games in town
Over the past year, more companies decided to go the trust fund route to avoid paying taxes. Suddenly, the oil and natural gas companies were joined by those drilling for Maple Syrup and everything else.Screwed by the Tories
Finally, in October, 2006, the Tory government announced that all of the Trusts would be taxed as corporations beginning in 2011. Now 2011 is a long way off, but the results were instantaneous -- a massive selloff of the CANROYS with many of them losing 20% of their value. Many retired Canadians were heavily invested in CANROYs, and lost large amounts of life savings. More importantly, Peter Planchet was invested in CANROYS and he lost money.Investing with High Dividend yields
Canadian Royalty Funds produce high dividend yields. The dividend payoffs for CANROYS have remained the same. In fact the government threatened the trusts with big fines if they did not continue to pay off the shareholders. Since the value of the funds declined so dramatically, the dividend rate is now much higher. It is now possible to find CANROYS in the 16-17% range for dividends, which is a handsome payoff. As Americans, we only pay 15% tax on dividends. (We also have tax withheld by the Canadian government, but we get that all back with a credit on our federal taxes). If the CANROYS go down, we can sell them at the end of the year, and let the US governement reimburse us through the writeoffs for Capital losses. Then we can buy them back (or buy new ones) for next year. (disclaimer: Please note that although Peter Planchet, PhD claims to be an expert on everything, including US tax law, he is not authorized to give tax advice).
Selling Royalty Trusts
When 2011 comes along,the payouts for CANROYS will decline, since the trusts will be paying a brand new 40% tax prior to rewarding distributions. At that time, they will be less desireable. In anticipation of this, we might expect another selloff sometime in 2010. Meanwhile, we already had a big selloff in anticipation of an event that will not take place for years. CANROYS should have many good years left in them. For now, I'll take the 18% dividend.
Hedging your CANROY bets
Individual Canadian royalty trusts have individual risks, and traditionally, the CANROYS have been volatile. To minimize the risks, you should divide your investment by purchaing several CANROYS.
Disclaimer and Risks for Canadian Royalty Trusts
1. If the price of natural gas and oil decline, all CANROYs may go down in value.
2. Individual CANROYs will vary. Some companies will find new oil and others won't. It's best to hedge your bets by buying several different CANROYS.