Monday, March 2, 2009

Added to Harvest Energy

Today, I added to my position in Harvest Energy Trust (Toronto: HTE.UN) within my RRSP by purchasing 400 units at $5.83 each. They are reporting tomorrow, and like everyone I expect the distributions to be cut. The question is: By how much?

Looking at how much of a beating the stock has had lately, to me it looks like the market is pricing it as if the trust was about to completely eliminate the distributions. I think that's highly unlikely. I'm expecting a cut from $0.30 to $0.10 per month -- which would leave the yield at 20% based on the current price. At that yield, I don't mind keeping the units for a long time. But if the price pops up, as I expect it will, then I may sell that additional stake for a quick profit. After all, there's a lot of sales going on.

One thing to remember about Harvest Energy is that, while a large part of their income is from pumping oil and gas out of the ground, it also owns a refinery. Have you noticed that the price of gasoline hasn't fallen as much as oil itself? Refiners are still making good margins, maybe even better margins than last year, because the price they pay for oil is down more than the price they receive for refined products. So for Harvest the refining part of the business is acting as a counterweight against the free-falling oil price.

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