Another contender in the Roth IRA race is PrimeWest Energy Trust (PWI: chart, web, news). PrimeWest is another Canadian Royalty Trust that deals in the production, extraction, development, and marketing of oil and natural gas. Most of the production from PWI comes from the Western Canada Sedimentary Basin, and produces nearly 40,000 boe per day.

Like my Provident Energy (PVX: chart, web, news) holdings, PWI pays a monthly dividend distribution that totals about 13% annually. On top of that, TD Ameritrade has indicated that PWI does subscribe to a DRIP program, allowing my monthly dividends to be rolled right back into the stock.

PrimeWest has a healthy profit margin at 43% over the last twelve months, but remember, this does include a period of high oil and gas prices ($75, and $14 respectively). Quarterly earnings are growing at a respectable 20% rate, year over year, and the diluted EPS is a modest 2.76 per share.

A big mark against the trust is the $382 million in debt as of the most recent quarter, and only $50 million in cash. The oil industry is an expensive playground to play in, but I’d like to see the cash on hand match up a little better.

The PWI payout ratio (POR) is flirting with 114%, the quarterly revenue growth is in negative territory at -3.2%, and natural gas prices continued to be weak due to supply, all of which explains why they just cut their next dividend payment to $0.25 Canadian, or about $0.22 USD.

On the upside, they do have a considerable amount of their natural gas production hedged through the first part of next year. They’re weighted 68% to natural gas, and 32% to crude oil, meaning the stock price is more likely to follow the price of gas rather than oil.

I like the fundamentals of PWI, and I like the fact that they are keeping their payout ratio in line and reasonable, as much as I hate to admit it. They are an active oil and gas company that controls 80% of their own assets, with the balance controlled by partner operators.

New reports out indicate it will be a colder than usual winter (inline with the Farmers Almanac) contrary to government predictions. This means that our high supply levels may take a hit as winter weather spreads across the U.S., driving up demand for natural gas and likewise the price.

If you buy into the notion that natural gas prices will continue to rise through the winter and into next spring, now is a great time to buy natural gas trusts.

PrimeWest maintains an investor-friendly website that hosts a wealth of great information on their operations and their financial activity.

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