Friday, February 20, 2009

Pengrowth Cuts Distributions

One of the companies in my DRiP portfolio, Pengrowth Energy Trust, has just announced a reduction of their monthly distributions from $0.17 to $0.10 -- a decrease of 41%. The reasons stated are "financial prudence in uncertain times", being able to "fund substancially all of its capital program" and "flexibility to pursue new acquisition and consolidation opportunities".

Pengrowth had already announced a first cut (from $0.225 to $0.17) in December, so overall Pengrowth has cut distributions by 56%. Considering that in less than a year the price of oil has fallen by more than 50% (not even considering its peak last July), this doesn't come as a surprise. I would be much more worried if Pengrowth had kept paying such a high distribution, and obviously the market was already pricing in a cut, as the yield was around 22% recently. Oil and gas trusts must follow the price of the resource they extract, it's as simple as that.

Although this will somewhat impact my dividend income for 2009 (by a bit over $9), this may prove to be a good time to add to my holdings of the trust. This morning the price of the units has fallen to around $8.70 -- which translates to a distribution yield of 13%. I wouldn't be surprised to see the price fall further. Making small periodic purchases of units through the Optional Trust Unit Purchase Plan will allow me to take advantage of the lows, while diminishing timing risk. Pengrowth offers a 5% discount to units purchased through the plan.

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