The Canadian Royalty Income Trusts have been devastated by the triple whammy of the government’s proposal to levy a harsh tax against the income of those trusts, the falling price of oil and gas, and the Canadian dollar’s decline against the U.S. dollar. But there are signs that the Canadian government may soften the blow by grandfathering existing royalty trusts, or by extending the waiting period before implementation to ten years; and there are signs that the collapse of energy prices may be in a bottoming process. If energy prices stabilize, the Canadian dollar should as well.
After studying charts of several of these trusts which trade on the U.S. exchanges, I rather like Pengrowth Energy Trust (PGH). PGH has declined from a high of 25 last May to a low of 14.77 in November. But unlike most of its fellow Canadian Royalty Trusts, PGH made a higher bottom during the January plunge than it did last November. The chart exhibits a bullish short-term configuration and on-balance volume is constructive. Distributions over the last 12 months have been $3.00 Canadian, or $2.56 U.S at current exchange rates, so this security has a gross current yield of 15.13% for U.S. investors, as well as significant capital appreciation potential.