FORT CHICAGO ENERGY TRUST $8.68 (Toronto symbol FCE.UN; Shares outstanding: 134.1 million; Market cap: $1.2 billion; SI Rating: Extra Risk) owns 50% of the Alliance Pipeline, which runs 3,000 kilometres from Fort St. John, B.C., to Chicago. Enbridge Inc. owns the other 50% interest. The two partners also own 85.4% of the Aux Sable natural gas liquids plant. As well, Fort Chicago owns the 1,324-kilometre Alberta Ethane Gathering System.
Fort Chicago has added to its power-plant interests over the last couple of years. It now owns natural gas-fired cogeneration facilities in Ontario and California, plus power generation systems in Ontario and Prince Edward Island. It recently bought the Brush II Cogeneration plant in Colorado for $32 million U.S.
In the three months ended June 30, 2008, Fort Chicago’s revenue rose 31.4%, to $178.7 million from $135.9 million a year earlier. The higher revenue mainly resulted from Fort Chicago’s purchase of Countryside Canada Power in August 2007. Cash flow per unit rose 3.3% in the quarter, to $0.31 from $0.30.
Withholding taxes and the advantage for RRSPs
Fort Chicago’s units yield 11.5%, but there is an advantage in holding the units in RRSPs. U.S. dividends paid inside RRSPs are not subject to the 15% U.S. withholding tax. Outside of RRSPs, you may need to submit extra paperwork at tax time to get a Canadian income-tax credit to offset the withholding tax. About $0.025 of Fort Chicago’s monthly distribution of $0.0833 is subject to U.S. withholding taxes.
Fort Chicago is still a buy, with an added bonus for investors who hold it in their RRSPs; holding Fort Chicago’s units in RRSPs provides a shelter from the U.S. withholding tax on dividends.
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