Comments on: How To Pick High-Caliber Income Trusts (Version 1) http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/ A Vancouverite's journey to financial freedom. Tue, 06 Jan 2009 20:57:13 +0000 http://wordpress.org/?v=2.1.2 By: moneygardener (AKA investor99) http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-379 moneygardener (AKA investor99) Fri, 29 Jun 2007 19:40:10 +0000 http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-379 Really good post. I think you are aware of my Income Trust strategy that I am employing for my wife's mat. leave. I think I am going to use IPL.UN and CWI.UN for this. What are your thoughts on the distirubtion safety and capital stability of these two? Really good post.

I think you are aware of my Income Trust strategy that I am employing for my wife’s mat. leave. I think I am going to use IPL.UN and CWI.UN for this. What are your thoughts on the distirubtion safety and capital stability of these two?

]]> By: White Eagle http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-380 White Eagle Fri, 29 Jun 2007 20:52:55 +0000 http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-380 Great post. How do you feel about holding income trusts in an RRSP? I've seen conflicting information as to where it is best to keep them; inside or outside an RRSP. Though, I must say that from my understanding of how the distributions are taxed, I see the benefits of holding them inside a registered account a lot more appealing for my tax situation so I'm thinking of holding some in my RRSP over the next 2 or 3 years (before the 2011 ruling comes into effect). Perhaps, I'm missing something. I'd love to hear people's thoughts on that topic! Great post.

How do you feel about holding income trusts in an RRSP?

I’ve seen conflicting information as to where it is best to keep them; inside or outside an RRSP. Though, I must say that from my understanding of how the distributions are taxed, I see the benefits of holding them inside a registered account a lot more appealing for my tax situation so I’m thinking of holding some in my RRSP over the next 2 or 3 years (before the 2011 ruling comes into effect). Perhaps, I’m missing something.

I’d love to hear people’s thoughts on that topic!

]]> By: White Eagle http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-381 White Eagle Fri, 29 Jun 2007 21:10:08 +0000 http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-381 I guess I wrote up my question to soon as I just found a potential answer: "It depends!" Ha, don't I just love this answer to all financial questions. Seriously though, this is what I found on Gordon Pape's site: "Whether you should hold trust units inside or outside an RRSP depends on the nature of the distributions. Trusts whose income is fully taxable, or nearly so, should be held within a registered plan to take advantage of tax sheltering. Trusts whose distributions consist mainly of dividends, capital gains, and return of capital should be held outside a registered plan. – G.P. (Jan/06)" Since this is dated a year and half ago, I guess my question now is, does this still apply with all the income trust changes announced? I guess I wrote up my question to soon as I just found a potential answer: “It depends!” Ha, don’t I just love this answer to all financial questions. Seriously though, this is what I found on Gordon Pape’s site: “Whether you should hold trust units inside or outside an RRSP depends on the nature of the distributions. Trusts whose income is fully taxable, or nearly so, should be held within a registered plan to take advantage of tax sheltering. Trusts whose distributions consist mainly of dividends, capital gains, and return of capital should be held outside a registered plan. – G.P. (Jan/06)” Since this is dated a year and half ago, I guess my question now is, does this still apply with all the income trust changes announced?

]]> By: Financial Jungle Guy http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-382 Financial Jungle Guy Fri, 29 Jun 2007 21:29:44 +0000 http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-382 I’m having a tough time finding good trusts that yield a high percentage of capital gains or return of capital. Come to think of it, how long can a trust distribute return of capital? Most trusts on my watchlist have > 90% interest distribution. For that reason, I try to fit as many trusts into my RRSP as possible. My plan is to shift them out to non-registered in 2011 to take advantage of the dividend tax credits. MoneyGardner, I like CWI-un, but wouldn’t put too much portfolio weight on it, since both the business and the geographical coverage are very focused. Waterheaters have a 15-year lifespan and require very little maintenance. I think the distributions should be safe, since people need hot water even in recessions. [Edit: ... although I think CWI-un may be a bit expensive after a good run.] I’m having a tough time finding good trusts that yield a high percentage of capital gains or return of capital. Come to think of it, how long can a trust distribute return of capital? Most trusts on my watchlist have > 90% interest distribution. For that reason, I try to fit as many trusts into my RRSP as possible. My plan is to shift them out to non-registered in 2011 to take advantage of the dividend tax credits.

MoneyGardner, I like CWI-un, but wouldn’t put too much portfolio weight on it, since both the business and the geographical coverage are very focused. Waterheaters have a 15-year lifespan and require very little maintenance. I think the distributions should be safe, since people need hot water even in recessions.

[Edit: … although I think CWI-un may be a bit expensive after a good run.]

]]> By: Thomas http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-383 Thomas Sat, 30 Jun 2007 02:44:27 +0000 http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-383 (1) What are you going to use to determine relative valuation? Many "high-caliber" trusts may already be over-valued. A quick and dirty estimate of FY2006 'corporate equivalent' P/E ratios shows CWI at 9.3x and CLC at 8.5x. (2) Return of capital makes me very suspicious. (see my post on trusts at http://investskeptically.com/2007/06/07/income-trusts/) (3) I have a lot of TIF.un in my portfolio but haven't done very well. If anyone can give me some harsh criticism of this name it'd be much appreciated. (1) What are you going to use to determine relative valuation? Many “high-caliber” trusts may already be over-valued. A quick and dirty estimate of FY2006 ‘corporate equivalent’ P/E ratios shows CWI at 9.3x and CLC at 8.5x.

(2) Return of capital makes me very suspicious. (see my post on trusts at http://investskeptically.com/2007/06/07/income-trusts/)

(3) I have a lot of TIF.un in my portfolio but haven’t done very well. If anyone can give me some harsh criticism of this name it’d be much appreciated.

]]> By: FourPillars http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-384 FourPillars Sat, 30 Jun 2007 03:26:24 +0000 http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-384 Excellent post. I don't know much about income trusts so I can't add anything to your checklist but keep it going! Excellent post.

I don’t know much about income trusts so I can’t add anything to your checklist but keep it going!

]]> By: Financial Jungle Guy http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-385 Financial Jungle Guy Sat, 30 Jun 2007 04:25:05 +0000 http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-385 Thomas - I think valuation is a little bit art and science. I suppose one can value trusts using the <a href="http://www.moneychimp.com/articles/valuation/dcf.htm">Discounted Cash Flow</a> calculation, but substitute Earnings with Distributions. A quick and dirty method to compare different trusts is to add the distribution yield and the expected growth. For example, a trust yielding 10% is worth roughly as much as another one yielding 6% with a 4% anticipated growth rate. I'm open for suggestions. :) Yeah, I'm suspicious of return <b>of</b> capital as well. I rather receive genuine income and get taxed for it. As for TIF-un, I see that in 2007, the business generated $198.93 in operational cash-flow, but that's not enough to cover all of: * Depreciation/Depletion - $84.74M * Amortization - $7.22M * Distribution - $127.3M It's not that bad though. The business is probably cyclical since they were doing well in the years prior. Thomas - I think valuation is a little bit art and science. I suppose one can value trusts using the Discounted Cash Flow calculation, but substitute Earnings with Distributions. A quick and dirty method to compare different trusts is to add the distribution yield and the expected growth. For example, a trust yielding 10% is worth roughly as much as another one yielding 6% with a 4% anticipated growth rate. I’m open for suggestions. :)

Yeah, I’m suspicious of return of capital as well. I rather receive genuine income and get taxed for it.

As for TIF-un, I see that in 2007, the business generated $198.93 in operational cash-flow, but that’s not enough to cover all of:
* Depreciation/Depletion - $84.74M
* Amortization - $7.22M
* Distribution - $127.3M

It’s not that bad though. The business is probably cyclical since they were doing well in the years prior.

]]> By: ThickenMyWallet http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-389 ThickenMyWallet Wed, 04 Jul 2007 00:55:19 +0000 http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-389 Good post. I would differentiate between different types of trusts. Energy trusts have a structural issue that business trusts do not; they run out of reserves so are they consistently replacing their reserves? Business trusts are less sensitive to interest rates than REITS and some type of trusts are more fixed income in nature than others which have equity like characteristics. One other issue to look for regardless of industry: look at the Net Asset Value Per Unit- it should remain stable; if it fluctuates, the trust has stability issue and should be avoided. Looking forward to the next post on this topic! Good post. I would differentiate between different types of trusts. Energy trusts have a structural issue that business trusts do not; they run out of reserves so are they consistently replacing their reserves? Business trusts are less sensitive to interest rates than REITS and some type of trusts are more fixed income in nature than others which have equity like characteristics.

One other issue to look for regardless of industry: look at the Net Asset Value Per Unit- it should remain stable; if it fluctuates, the trust has stability issue and should be avoided.

Looking forward to the next post on this topic!

]]> By: Financial Jungle Guy http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-391 Financial Jungle Guy Wed, 04 Jul 2007 05:24:52 +0000 http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-391 Thicken, you've been holding back! Thanks for the comments. That's true. Since income trusts are classified into business trusts, power & pipeline trusts, REIT and oil & gas trusts, perhaps it's more practical to create a checklist for each group. I still have the common stock mentality in me, so this post is more suited for business trusts. Thicken, you’ve been holding back! Thanks for the comments.

That’s true. Since income trusts are classified into business trusts, power & pipeline trusts, REIT and oil & gas trusts, perhaps it’s more practical to create a checklist for each group.

I still have the common stock mentality in me, so this post is more suited for business trusts.

]]> By: Weekend Ramblings - July 6, 2007 - Million Dollar Journey http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-400 Weekend Ramblings - July 6, 2007 - Million Dollar Journey Fri, 06 Jul 2007 11:44:56 +0000 http://financialjungle.com/2007/06/29/investing/how-to-pick-high-caliber-income-trusts-version-1/#comment-400 [...] Financial Jungle explains how he picks high-caliber income trusts. [...] […] Financial Jungle explains how he picks high-caliber income trusts. […]

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