As you may know, on October 31, 2006, the Canadian government laid out proposed changes to the tax treatment of the country's high-yielding royalty trusts. They said trusts would no longer be able to avoid paying corporate income taxes but instead would be taxed as ordinary corporations by 2011. The move would reduce the cash flow that powers the double-digit yields that have made these investments so attractive.

Following the announcement, investors fled for the exit doors and Canadian oil and gas trusts lost about -20% to -30% of their market value. But now they're starting to turn around. Provident, for instance, plunged from a close of $11.95 on October 31st to a low of $9.00 following the announcement, shedding -25% of its market value in just two days. In the past few weeks, the shares have been trading at their previous levels, hovering around $12.00.

A few factors are driving the shares higher. For starters, investors are starting to realize that companies like Provident, with solid fundamentals, can continue to support their rich payouts for at least another few years. The company pays a monthly distribution of about $0.11 per unit (the exact amount varies with the Canadian/U.S. exchange rate). That equates to $1.32 annually and gives the trust a yield of 11.1%.

With over half of its production from natural gas, the company is leveraged to rising natural gas prices. But it's the lucrative midstream (processing and transporting) business that makes PVX so attractive. The company is one of only two Canadian firms that controls the full natural gas production cycle (from producing to gathering to shipping, storing, and marketing natural gas liquids).

About 60% of the company's cash flow, which comes from natural gas and oil production, depends on volatile commodity prices. The balance comes from the midstream business, which churns out relatively stable and predictable cash flow. Also, since midstream profit margins improve when natural gas prices decline, the company's diverse operations provide a natural hedge against volatile natural gas prices.

The trust has continued to expand through acquisition. A few weeks ago, it announced a $508 million deal to buy one of the largest crude oil pools in Western Canada. The company says the purchase would boost the trust's reserve base by about 40% and be accretive to cash flow. Despite the aggressive acquisition strategy, the trust maintains a healthy balance sheet, with a debt-to-equity ratio of less than 1.0.

Speculation that trusts like Provident could become takeover targets as we move closer to 2011 also may be pushing the shares higher. For now, though, Provident has said it sees itself in a strong position to acquire rather than be acquired. Only time will tell.

Action To Take ---> For yield-starved investors with a strong tolerance for uncertainty, we believe Provident is one of the more attractive Canadian income trusts.

Carla Pasternak
Editor
High-Yield Investing

About High-Yield Investing

High-Yield Investing is a monthly investment newsletter that brings you a wealth of information on the market's leading income stocks and funds, as well as a host of relatively unknown investment options that you probably won't find coverage of anywhere else. Many of these securities provide investors with annual dividend yields of 10%, 15%, even 20% or more. The newsletter not only provides subscribers with investing ideas that produce incredibly high dividend yields, but the kicker is that these high-yield investments have also consistently outperformed the major market averages. (Learn More)

About Carla Pasternak

Editor of StreetAuthority.com's High-Yield Investing newsletter since its inception in May 2004, Carla Pasternak draws on a variety of financial backgrounds to make profitable calls on income-generating stocks for her readers.

Carla has been employed in the investment industry for more than two decades. In addition to her work as a writer for several nationally recognized financial publishers, her previous experience includes a position as president of a well-respected investor relations firm. She has also been writing shareholder reports for public companies since 1980.

A highly successful investment analyst, Carla specializes in high-yield, income-paying stocks. In that pursuit, she's always mindful to select companies that not only pay rich dividends, but that also deliver strong long-term capital gains. Furthermore, Carla's experience in writing SEC filings gives her the added insight required for her to truly understand a company's current and future financial health.

On the educational front, Carla holds BA, MA, MBA and Ph.D. degrees. When she's not watching the market, she's teaching business courses at the college level and managing millions of dollars in portfolio assets.

To learn more about Carla Pasternak's premium income investing newsletter -- High-Yield Investing -- please visit this link.