Potential Tax-Free Dividends Planned for Enerplus?

Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Progress Report:  ConocoPhillips (NYSE: COP), mentioned 12/30/11 around $73 per share, currently trading around $77 a share (intraday, 3/26/12).

Enerplus Corporation (NYSE: ERF), recently announced plans to change their current Dividend Reinvestment Plan (DRIP), to a more “tax-friendly” Stock Dividend Program (SDP). The existing plan is only available to Canadian shareholders, but the new arrangement, should it pass shareholder approval, will be available to all loyal shareholders (company press release).

This is a delightful bit of news from the Canadian oil and gas company, which has a phenomenal 9.3% dividend yield. It pays shareholders a monthly dividend of 18-cents per share, and puts it in rarified REIT air. For those of us that reinvest dividends, the plan put before a shareholder vote will simply repurchase shares of the company at a 5% discounted rate, thus epitomizing the term, “no-brainer”. Not only that, but since they will not pay a cash dividend, those shareholders not residing north of the border, but still enjoy the occasional LeBatt Blue will no longer incur a foreign tax anywhere from 15-25%.

This refreshing potential action should place these guys squarely in the crosshairs of several dividend players, including yours truly. With the foreign tax eliminated, proud Americans owning this stock will only be responsible for capital gains. Now I don’t think I have made it clear as to how much I detest capital gains taxes. As an individual home trader, it rings rather unfair, since I am investing income that has already been taxed by our fiscally challenged government. I think the rates are much too high, and it reeks of an investing sales tax, which I feel ultimately keeps a lot of “normal” people from trading in the markets. But rather than go into a tired, monotonous diatribe about our current tax laws, which are about as easy to understand as Donald Trump’s hair style, I will perform a mild happy dance at some point next week after I make my first acquisition of this oil and gas play, eh. So hopefully, if the proposal passes, come June there won’t be any foreign taxes stripped from monthly dividends for this hoser.

So when I start my Enerplus position at some point next week, I will have a substantial portion of my portfolio in the oil and gas sector, which includes a stake in ConocoPhillips, set to split into two companies at some point in the second quarter of this year. An exact date has not been given as of this writing, but we may hear something from the investor update meetings, from Phillips 66, Monday, April 9th and from ConocoPhillips, Monday, April 16th. For those who don’t know, shareholders of ConocoPhillips will receive one share of the new company (Phillips 66), for every two shares owned.

I am aware that diversification is an integral part of successful investing and although my portfolio may seem rather oily after I add Enerplus to it, I also own a vast array of products to keep its skin clear. When a major sector gets beaten on like Neil Peart’s drum kit, it is for our own investing health to own stocks across a few different sectors and keep us from seeking out happy hour when the market acts like an irrational three-year-old. ConocoPhillips 3.5% dividend yield is certainly nothing to sneeze at, even if your allergies are acting up this month, and stocks across the same sector that offer such shareholder payouts snap up more shares at a discount during moments of market malaise. So Enerplus gets added to my watch list, and barring any potential outbreaks or unsightly rash my research unmasks, this juicy dividend will fit nicely in my lineup.


The Motley Fool has no positions in the stocks mentioned above. Motley Fool blogger Kyle Metivier has a long position with ConocoPhillips, and plans to initiate a long position with Enerplus next week. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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