Tuesday, June 12, 2007

Looking at the Income Trusts

Income Trusts - Park Your Money Investments, looked at a list of income trusts on a site promoting them as having very high growth potential, plus a couple that I knew about that had dividend high yields.

On a very simple assumption that dividend yields would remain the same and the market would value the trusts equally, I did a calculation on how much they could potentially grow, and made it clear that no fundamentals had been looked at.

In A Closer Look at Two Income Trusts the top two picks off that web site were looked at closer, and there was more information about about how the list was derive, and it was based on previous growth. So, one of the trusts had enormous "growth" from a buyout and was finished. The other was a declining business and at risk of reducing the dividend it they did not get things turned around. The decline was slow, but a shrinking business should demand a premium dividend rate.

On May 24th the TSX opened at 14,173 and it has declined to 13,724 since that post, or 3.27%. To buy one share each of those stocks would have cost $570.04. They have declined by 2.54%, to $555.58, but some have paid a dividend, for $2.15 on 17 of the stocks. The dividend reduces the loss to 2.21%.

The biggest decliner was Faircourt Management Inc, FIG.UN, by 15%, although the dividend reduces that to 14.3%. So, just what is this Faircourt? Faircourt is a an income trust fund with about 60 different holdings. It has assets of almost $110 million.

Their web site shows their holdings. In 2006 they got $10.8 million in distributions from the holdings. There was $5.8 million in expenses. Read the report and the management fee states it is 1.1% for one thing and then an additional 0.4% management fee. But then there is an additional $330k for some service fee, and $65k for audit, trustee and legal fees. Then there are reporting costs, record keeping fees, custodial fees, administrative fees, interest and bank charges and interest on preferred securities. It seems there is an awful lot of money being used to push paper that would be avoided by simply buying the a few of the holding directly.

My simple extrapolation from the dividend suggested this one would make about 3% over the year, and that's including the dividend, meaning the share price would go down.

That's a 3rd one to scratch from the list, at least as far as my investment decisions go.

1 comment :

Deborah said...

I also set all these trusts up to send me news. Just got news that yet another company, CDI.UN, has accepted a $10.20 cash per unit offer. There That one is finished now.