For a smaller, more-aggressive piece of your portfolio, I recommend dipping into a few high yielding Canadian energy producers. Before 2011, our northern neighbor allowed “income trusts” to avoid corporate tax by passing along the lion’s share of their earnings as dividends to shareholders.
That law has lapsed, so the trusts have now converted to corporate form and are paying taxes. Most, though, especially the producers oriented to oil (rather than natural gas), are still dishing out juicy dividends.
My top-priority buy, as we speak, is Enerplus Resources (NYSE:ERF). About 85% of ERF’s cash flow comes from oil, and the company is growing its oil output with new volume from the Bakken Shale in North Dakota. At first blush, ERF’s towering 9.1% yield would seem to indicate extraordinary risk. However, Enerplus maintains a strong balance sheet, with less debt than most of its peers.
Additionally,this tough little operator doles out only 57% of its cash flow (EBITDA) in the form of dividends. Hence, I’m convinced that—barring a steep drop in oil prices— ERF will maintain its payout at the present rate (approximately 18 U.S. cents monthly).
After Enerplus, my #2 choice would be Canadian Oil Sands (PINK:COSWF), a leading producer of synthetic crude from the bitumen sands of Alberta. Once COSWF wraps up an ambitious expansion program in 2013, the dividend will likely soar, to perhaps C$2 per share or more by 2015. Bear in mind, though, that turning tar into synthetic crude is a costly process, making COSWF’s results highly sensitive to oil prices.
Furthermore, bottlenecks in the pipeline system that transports crude from Canada into the United States can widen short-term swings in the prices COSWF receives for its oil. Only investors (like me) with a rubber soul should own the stock! Quarterly dividends. Current yield: 5.5%.
Note that Canada collects a 15% withholding tax on dividends paid to U.S. residents. However, you may be able to avoid the tax in a retirement account; check with your IRA custodian.