Shares of Precision Drilling, a Canadian owner of oil-and-gas rigs, tripled between 2002 and last summer. But Precision recently sold its foreign units and some other operations in order to shrink and reorganize into an income trust. Why mess with success? To become an even bigger success.
Canadian firms that convert to trusts can do shareholders a big favor. Such a move shields Precision (symbol PDS) from corporate income taxes. The freed-up cash can be reinvested in the business and passed along to shareholders -- which Precision did for the first time in December. Its monthly dividend of 27 cents Canadian (23 cents in U.S. currency) gives the stock a yield of 8.3% on a mid December price of $33 (U.S.). Those dividends qualify for the 15% U.S. tax rate. And although Canada takes 15% off the top, you can recover the money by filing for a foreign tax credit.
Should energy prices and rig rents remain high, Precision says it could raise dividends another 10%. You'll know by spring. If dividends rise handsomely and all else goes well, the stock is capable of reaching $40 this year or next. Merrill Lynch analyst Alan Laws foresees the higher dividend and a 7.5% yield. That would do the trick.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Analysts around Calgary, Precision's hometown and Canada's energy capital, have mixed opinions about Precision's potential. Randy Ollenberger, of BMO Nesbitt Burns, is neutral, predicting that Precision will track the drilling-services sector -- but he likes the sector. Kevin Lo, of First Energy Capital, is more upbeat. By focusing on acquiring other businesses in Canada, he says, Precision will both enhance its growth potential and reduce the risk attendant with international operations. The outlook obviously darkens if oil-and-gas prices fall, but significant drops are unlikely.
-
You Don’t Want to Retire in Portugal: Here Are Three Tax Reasons WhyRetirement Taxes With the NHR benefit retiring and pension taxes increasing, you might rethink your retirement plans in Portugal.
-
Home Depot's Winning Ways Fueled Its 100,000% ReturnHome Depot's wide moat leaves little room for competition – and shareholders have profited as a result.
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
-
Stock Market Today: Stocks Retreat Ahead of Nvidia EarningsMarkets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in FocusNvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
-
Stock Market Today: Dow Hits New Record Closing HighThe Nasdaq Composite and S&P 500 finished in the red as semiconductor stocks struggled.
-
Stock Market Today: Stocks Pop After Powell's Jackson Hole SpeechFed Chair Powell's Jackson Hole speech struck a dovish tone which sent stocks soaring Friday.
