A stock is valued based on all future earnings discounted to the present. So yeah, the tax doesn't kick in until 2011 but it's wiping out dividends from 2011 until the end of time. Just to give you an idea, if the tax started next year, for PGH to maintain it's yield, the price of $19.60 yesterday would drop to $13.37 today. So what you need to do is figure on what the stock price would be in 2011, and then discount that price back to today. Everyone knows the dividends get murdered in 2011, so they are discounting the stock now. Even if only a few shares traded hands, the value of this company is much lower. If you held through this, like I did, you're screwed. Maybe if you buy today, you can do well (I still think we may be headed a bit lower) but understand that you will do no better than if you had bought yesterday and the government didn't change the tax. Let me repeat: the market has slashed the price of this stock because it's future income is worth far less, so if you buy today (assuming the price is now correct) you have the same expected return as someone who bought yesterday at $19.60 not knowing of the tax increase. There is no deal here. PGH at 19.60 and low taxes = PGH at 17 (or lower) with high taxes.
From the news, the government moved because the biggest telcos were looking to become trusts to avoid taxes. Why the Canadian government didn't simply restrict the trusts is beyond me, but there you have it. So if you're hoping that the energy trusts will be left alone, that's all it is but hope.
Finally, the Canadian dollar is getting hammered because of this. So your dividends are now being cut on top of the additional taxes that are cutting into your dividends. This law will have nothing but negative effects on the Canadian economy, which will mean the Canadian dollar will continue going lower. This is why I lean negative. The stock price might be roughly correct at the moment, but my gut says this will have negative impacts across the economy. -RD
If you know what oil and gas prices are going to be in 2011 and you also know what PGH's reserves and production profile are going to be at that time, you're analysis approach might make some sense. There's a lot more than just dividends (or lack thereof) in backing out future valuation projections.
The only thing that has changed since yesterday is the potential tax rate, therefore the only thing one has to change in the analysis is the expected cash flows to the investor.
I'm wondering if the amount of capital being bled from the Canadian energy idustry implies higher energy costs in the long run. Suddenly these companies are facing a big problem if they need capital. Two deals have imploded thanks to this proposal.
>>>The new tax treatment wouldn't take effect until 2011, however, and wouldn't even hit Canadian investors, explains Robert Willens, Lehman Brothers' tax expert. "For Canadians, it's irrelevant." Canadian investors can "impute" taxes paid by corporations, effectively getting around the double taxation of dividends, which the "primitive" U.S. tax system doesn't allow, he adds. As part of tax change, the Canadian corporate tax rate also will be lowered to 18.5%.
The only beneficiaries of the current royalty-trust structure are tax-exempt investors, such as retirement funds and endowments, and non-residents. "It's all about U.S. investors," Willens says of the proposed tax change, which he says will likely gain passage because it was proposed by the supposedly business-friendly Conservative government.
Of course, the Canadian government doesn't have to worry about the ire of American voters or tax-exempt entities. It can freely impose this taxation in the absence of representation of those constituencies.<<<
Full disclosure: I am a PGH holder and I just picked up some CNE. -RD
Blame Canada, Blame Canada, With all the hockey hullabaloo and that prick Jim Flaherty too!
This is when cool heads prevail. You have to ask yourself:
1. Is PGH a sound company? Yes
2. Can I get better dividends elswhere? No
3. Is this proposed legislation a done deal? No
4. Even if it passes will it affect PGH for the next 5 years? Probably a minor impact.
5. When blood is running in the streets, is it a good time to buy? Hell yes!!
6. If I want to make a quick capital gain due to this over sold situation, where should I put my money? PGH!!
It's not a done deal? Who has to "pass" it?
Listen, I averaged down this morning for the third time. The first time I bought was in August and I don't even want to think of what I paid for it. I'm now up to my neck with this thing to the tune of a few hundred thousand dollars which is way more than I originally intended to invest. It is by far my biggest investment and I have no more cash.
I need hope based on facts. How can this new tax be overruled or cancelled?
Hopefully the Canadians put a whole bunch of pressure on the finance minister and only retrict telcos and new trusts. This is the second time shareholders have gotten stung in a month. Evidently somebody knew of this tax situation last month.
you're exactly right. That's why I think the price is a bit higher right now, because it's not 100% certain (i.e. some people are buying or holding on). The point of my post was only to say what the stock price should be if it comes to pass. Knowing that is important.
It is quite possible the bone heads at the Ministry will do something to mitigate the damage, like grandfathering the current trusts. -RD