Watch List: SRR.V for high yield

[dan_s]

SRR was brought to my attention by the same EPG member that brought my attention to Hemisphere Energy and InPlay Oil. It is Canadian micro-cap minerals company that pays monthly dividends. The dividend announced this morning is annualized yield of 8.86%.

At the time of this post SRR.V was trading at $0.88Cdn.

CALGARY, AB, April 15, 2024 /CNW/ - Source Rock Royalties Ltd. ("Source Rock") (TSXV: SRR), a pure-play oil and gas royalty company with an established portfolio of oil royalties, announces that its board of directors has declared a monthly dividend of $0.0065 per common share, payable in cash on May 15, 2024 to shareholders of record on April 30, 2024. This represents an increase of 8% to the monthly dividend. Source Rock has now increased its monthly dividend by 30% since March 2023.

This dividend is designated as an "eligible dividend" for Canadian income tax purposes.

About Source Rock Royalties Ltd.
Source Rock is a pure-play oil and gas royalty company with an existing portfolio of oil royalties in southeast Saskatchewan, central Alberta and west-central Saskatchewan. Source Rock targets a balanced growth and yield business model, using funds from operations to pursue accretive royalty acquisitions and to pay dividends. By leveraging its niche industry relationships, Source Rock identifies and acquires both existing royalty interests and newly created royalties through collaboration with industry partners. Source Rock's strategy is premised on maintaining a low-cost corporate structure and achieving a sustainable and scalable business, measured by growing funds from operations per share and maintaining a strong netback on its royalty production.

Contact Information

For more information about Source Rock, visit www.sourcerockroyalties.com.

[dirtdauber]

In your due diligence, I suggest you consider that this Canadian company's revenue, as a royalty company, is basically passive under IRS rules. That means it is a Passive Foreign Investment Company (PFIC), which imposes substantial income tax filing efforts based on IRS Form 8621 and added taxes, unless it is purchased in an IRA. Ignoring the requirement for annual filing of the 8621 can result in ONEROUS penalties.

[dirtdauber]

But, there is a threshold for "small" holdings. Married filing jointly are allowed a total of $50,000 worth of PFICs before having to file. Just found this tidbit a few days ago. This stuff is complicated.

[dan_s]

I am way below $50,000 of Passive Foreign Investment Company (PFIC).

Can you provide a link to explanation of this filing requirement?

[dan_s]

A Passive Foreign Investment Company (PFIC) is a corporation located abroad that meets one of two conditions based on either income or assets:

Income Test: At least 75% of the corporation’s gross income is “passive,” which means it is derived from investments or other sources not related to regular business operations.
Asset Test: At least 50% of the company’s assets are investments that produce income in the form of earned interest, dividends, or capital gains12.
PFICs are subject to strict and extremely complicated tax guidelines by the Internal Revenue Service (IRS). U.S. investors who own shares of a PFIC must file IRS Form 8621. These regulations aim to close tax loopholes that allowed some U.S. individuals to avoid taxation on foreign income. Examples of PFICs include foreign-based mutual funds and startups that fall within the PFIC definition. Foreign mutual funds are typically considered PFICs if they generate more than 75% of their income from passive sources, such as capital gains and dividends.

Read for more details on filing requirements: https://www.goldinglawyers.com/form-8621-reporting/ < My take is that unless you hold dozens of PFIC's the reporting is not that big of a deal.

Threshold for Reporting PFIC < $50,000 annual PFIC income is threshold for Married Filing Jointly.
Back in 2012, the rules changed and all PFICs have to be reported each year when the threshold requirement is met – whether or not any income was distributed. There are minimum threshold requirements, which will vary depending on whether the person is filing single or married filing separately versus jointly. The person who is single or married filing separately has to file form 8621 in any year that their total number of PFICs exceeds $25,000. Therefore, if you have one PFIC worth $50,000 or eight PFICs worth $5,000 each, these would meet the threshold requirements under either alternative and all PFICs would have to be reported. But for example, if a person only had one PFIC and it was only worth $19,000, then generally, unless there were distributions, it may not have to be reported. The same concept goes for individuals filing married filing jointly, if combined they have more than $50,000 in PFIC ownership.

PRIC income in an IRA is exempt from filing form 8621.