Five more oil and gas producer trusts boosted dividends at double-digit rates last month. For ARC Energy Trust
(TSX: AET.UN, OTC: AETUF), that makes a total of 40 percent in two
months, extraordinary for a trust run for long-term sustainability and
stability.
Rising dividends go hand in hand with the rough doubling in oil and gas
prices over the past year. And trusts are benefiting even more by using
their cash windfall to slash debt and boost capital spending, both to
develop properties and make acquisitions.
The good fortunes of the energy patch extend to other resource businesses as well. We sold metallurgical coal producer Fording Canadian Coal (NYSE: FDG, TSX: FDG.UN) when it became a momentum stock. But the resource producers highlighted in the May Feature Article, Building Growth, are also doing well. That includes Labrador Iron Ore (TSX: LIF.UN, OTC: LBRYF), which tripled its payout last month when its operator Rio Tinto secured a 90 percent gain in global iron ore prices.
Overall, Canada’s economic growth is flat this year. But as this
month’s Canadian Currents makes clear, that has a far different
connotation than it would in the US. The country is still running at
close to full employment. There’s no mortgage crisis sinking the
financial system, and the consumer sector and property market (see the
June Feature Article, Real Values) are still generally healthy. Rather, slower growth means less inflation pressure and more room for growth later on.
Unfortunately, it’s definitely the worst of times for some sectors of
the Canadian economy. On a family trip to Quebec last month, I noticed
very few US license plates. That observation gibes with the numbers
showing weaker US tourism in the face of a slowing US economy, surging
energy prices and rising Canadian dollar exchange rate in recent years.
Those three factors are the greatest danger to the fortunes of Canadian
trusts and corporations as we move into the second half of 2008, within
and without the hospitality sector. The ability of management to
navigate them will determine how safe dividends are and where share
prices go for the rest of the year.
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