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Canadian Income Trusts
Old 05-12-2008, 01:12 AM   #1
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Canadian Income Trusts

Any thoughts on these investments. I have $100+ in AAV (Advantage Energy). Dividend yield is 10%+. Stock moved from $9 to about $12 in the last month or so with the steep rise in Nat Gas. Dividends are qualified ordinary dividends for tax purposes in the US. Price is a little volatile but have been a magnificient vehicle especially given high energy costs.

thoughts?
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Old 05-12-2008, 06:38 AM   #2
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I dumped mine last fall to crystallize some losses. Sitting on the sidelines for now. Beware that some of the payments are return of capital and reduce your ACB. Energy is probably pretty safe right now. And the extra taxes don't get applied for a couple of years.
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Old 05-12-2008, 10:48 AM   #3
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I like the CANROYs, now probably not the time to jump into them with oil at record high. Only drawback is the canadian tax you pay on distros, but with yields over 10% that is something I'm willing to tolerate. Some issue w/future laws in Candada that strip CANROYs of their tax advantages, however w/oil so high and canada a safe place to do business, these trusts will continue to do well regardless.

Jim
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Old 05-15-2008, 05:19 PM   #4
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Taxes are withheld in canada (i think its 15%), but you get a foreign tax credit to offset dollar for dollar.

Most Conroys have "tax pools" or tax loss carryforwards for many many years beyond the 2010/11 change in tax treatment. By the way lots of political talk about keeping the income trust tax advantage for certain industries.

at 10%+ dividend yield, i am willing to ride this out to see what happens. Recently, Nat gas (AAV production is 60-70% Nat Gas, with the rest being oil) has risen big time and is projected to continue rising (CNBC analyst commenting on that today). We've seen a nice run so far and since its energy related, it provides decent diversification to the portfolio.

good luck all
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Old 05-16-2008, 04:02 AM   #5
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The big worry I have about Canadian Income Trust is that tax laws in Canada have changed. Beginning in 2010, I believe the favorable tax treatment of them ends. I think this will have large impact on the yield and consequently the price.

I prefer Master Limited Partnerships on assets like pipelines or oil and/natural gas storage facilities which typical yield 7-8% and have a history of increase distributions.
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Old 05-22-2008, 10:41 AM   #6
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Old 05-22-2008, 10:42 AM   #7
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Old 05-24-2008, 09:14 PM   #8
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I prefer Master Limited Partnerships on assets like pipelines or oil and/natural gas storage facilities which typical yield 7-8% and have a history of increase distributions.

What are these? Do you have some examples?
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Old 05-24-2008, 09:57 PM   #9
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What are these? Do you have some examples?
Wikipedia has a reasonable overview

The most common master limit partnership MLP is an oil or gas pipeline. Pipelines are fairly expensive to build but the cheapest way of moving oil or gas from the producing field/port to a refinery/factory/distribution point. Generally the returns are regulated much like a utility. Revenue is pretty independent of oil and gas prices and depends on volume. Contracts are generally multi year things, and include annual increase roughly in line with inflation 3-5%.

Expenses are pretty small except for maintenance and expansion. Hence revenue and profits are quite predictable. Pipelines last for a very very long time, and it is generally crazy for any body else to build a competing one, hence these companies have wide moats. On the other hand these guys aren't Google. (I did have one go up more than 250% but that is an aberration) in general you collect you 7% yield it increase by a couple of percent a year and you forget about them.


Unlike corporations MLP aren't taxed as a corporation rather you own a percentage of the partnership and a responsible for paying taxes Owning MLP is a minor pain in the but at tax time, if you are using Turbo Tax and major pain in the butt without a computer program. . A detailed tax treatment can be found here.


A fairly complete list of MLP is found here

My favorites based primarily on Morningstar Dividend Investor newsletter, but other sources are as follows.
SPH, KMP, APU, MMP NS and BPL, XTEX. These all have distribution in the 6-8% range limited or general partner... If you are more interested in future growth rather than current income the general partners have lower yields 3-5% but will likelt see 10%+ increases in distributions, my favs are BGH, MCG, XTXI,
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