Canadian Royalty Trusts

[modhatter]

Does anyone have any information or experience with purchasing Canadian Royalty Trusts. They are taxed at the 15% level. Any knowlege on them as investments?

[nfs]

If you can sift information from noise, the most active discussion forum re these puppies is at Stockhouse. You might also want to read some skeptical views here.

A bunch of the trusts, particularly the royalty trusts, are outright bets on the price of petroleum. That has been spectacularly successful the last couple of years and, if that's the sort of bet you want to make, then this is a way of doing it. As always, past performance is no guarantee of future results.

I'm a skeptic but not because I have any view about oil and gas prices next year or the year thereafter. It's because of the way these trusts are organized. They IPO or do a secondary, get money from investors, buy producing property, pump the wells, sell the product, and give the investors the money generated from those sales. When the reservoirs are depleted, they go back to the investors, do a secondary, ....

That's not a business in the usual sense. It is a relatively short term annuity backed up by the price of petroleum. Much of what you get back as "yield" is in fact your own principal.

[shiny]

Calgary Girl invests in these, you could PM her or look up some of her old posts.

[maddythebeagle]

http://www.dripinvesting.org/Boards/BoardMsgs.asp?BID=5

has a lot of canadian investors.

[Searcher7]

The following Yahoo Group may be of interest to you...

http://finance.groups.yahoo.com/group/CanRoys/

Here are the stated objectives of the group...

This group is designed for several purposes:

(1) Its PRIMARY focus is to provide a forum for the DUE DILIGENCE type of discussions of the Canadian Oil & Gas Royalty Trusts, aka, “CanRoys“,

(2) Its SECONDARY focus is to provide a forum to help members learn about the operations and analysis of these foreign CanRoy securities in order to be able to make their own investment choices,

(3) This forum will examine BOTH the PROS & CONS of owning these TSX traded Canadian securities in a rational, intellectual, mature and unemotional manner. Investing is business! The companies in which you invest your money are NOT like your favorite sports TEAMS for which you root and cheer whether they are winning or losing!

(4) The providing of personal stock picks or pumping ones holdings is not permitted here. Yahoo has many message boards if you seek that.

(5) This Group is designed to have a discussion forum FREE of those annoyances from immature posters who have demonstrated to me that they do not wish to increase their knowledge on these matters and are emotionally attached to their holdings and thus incapable of having a MATURE and OBJECTIVE discourse on both the pros and cons of these securities.

Finally, those investors who insist on seeing posts with only the PROS of their holdings will not be happy here. If it were not for the positives, we would not own them! So it is knowing and understanding the CONS, especially those negatives we might have missed in our due diligence, that really are the most valuable to the owners of a security.

Hope this helps!

[guitarplayer]

15% tax on royalty investments... that seems a lot

[dougdo]

It's all the trend in Canada right now. And unless I'm misunderstanding the question, they aren't neccesarily tied to the petroleum sector. They started indeed in real estate and then branched out from there. The idea being that any business which generates cash should pay it out as regular dividends to its stockholders rather than holding on to it and doing who knows what with it (buying more companies to inflate the CEOs ego perhaps). So there are trusts in a number of different sectors, real estate and oil and gas being the most popular. Many pay returns in the 10-15% range.

I believe the 15% referred to was referring to the fact that for US investors, the income would be taxed as a dividend and so be subject to the tax breaks recently introduced in the US for dividends.

[AltaRed]

I cannot speak to how Canadian royalty trusts (and income trusts) are taxed to US residents (i.e. whether they qualify for dividend treatment) but with the US/Canada tax treaty, there may be 15% withholding tax applied in Canada first. Which should not be a big deal since a US resident can use that as a foreign tax credit.

Canadian Royalty Trusts generally appy to the petroleum sector, but the broader category of Candian Income Trusts applies across the business spectrum. But be careful of quality. Trusts have become all the rage due to their payout rates, but not all businesses are suited to income trusts and some even pay out more than 100% of their cash flow (which is a death spiral taken over a long period of time). Buyer beware.

[dandan14]

Originally Posted by modhatter

Does anyone have any information or experience with purchasing Canadian Royalty Trusts. They are taxed at the 15% level. Any knowlege on them as investments?

I put 10k or so in these a year or two ago, and have been happy with my returns. I wasn't necessarily betting on the price of oil (although that has been a nice upside), but rather interested in the cash returns.
The taxes on these are hard to figure. You will have 15% dividend tax, but you will also have a certain percentage of your return taxed as "return of capital," which basically means they are paying out part of the company to you since the oil is being depleted.