Re: Conservative High Yield Investments
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A friend mentioned to me today that he's involved in some stocks that yield high dividends. PGH is one of the symbols he mentioned, which is a stock that seems like it never moves and has almost a 15% yield.
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It has been just over one year since the Canadian federal government announced its proposal to apply a tax at the trust level on distributions where currently they are taxed only at the unitholder level (the “October 31 proposals”). The proposals were passed through the Canadian parliamentary system and are scheduled to commence in January 2011. As part of the proposals, the government also effectively eliminated any future conversions to a trust model and implemented growth guidelines for companies currently structured as a trust.
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We have been working diligently with external advisors and completing extensive internal analysis of the impacts of the October 31 proposals and the alternative structures available to Pengrowth. These may include options such as:
• Conversion to an exploration and production (E&P) company in part or in full;
• Spin out an exploration company from part of our assets;
• Move part or all of our assets to a U.S. Master Limited Partnership/Limited Liability Company structure; and
• Privatization
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You should go to the SEC site and read PGH's filings (excerpts above), it's about 70 pages but you should gain a much clearer idea of PGH's risks that way.
Without reading it, and off the top of my head, risks probably include
1) Income is linked to energy prices.
2) Dividends are linked to canadian dollar.
3) Energy prices are inversely coorelated to the U.S. dollar.
4) Dividends are affected by canadian & U.S. tax policies.
5) Energy trusts in general have risks of depletion, wells running dry and reducing dividends because of it.
My guess that 15% dividend is saying the market expects the net dividend to decline substantially, either due to tax changes, company structure changes, depletion, energy prices, or all three. If so, the stock will probably decline along with the dividend, at least at first.
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