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Investors have reason to become bullish on the oil patch but one observer cautions that some companies may be adopting a dividend-paying structure simply to pump up their stock price.
Investors have reason to become bullish on the oil patch but one observer cautions that some companies may be adopting a dividend-paying structure simply to pump up their stock price.
(LARRY MACDOUGAL/The Canadian Press)

Are energy ‘divcos’ the new income trusts?

The energy sector is breeding a new batch of companies that pay hefty dividends, conjuring memories of the high-flying income trust era – and raising questions about the sustainability of cash distributions.

Before the financial crisis, energy trusts that paid monthly distributions garnered major investor attention because they had tax advantages that helped them offer juicy yields. Some trusts, however, could not afford their payments and had to borrow money to make ends meet. When oil prices plummeted, those who overreached were quickly exposed.