Dividend Stocks: Chemtrade Logistics Income Fund offers high yield

The low Canadian dollar boosted revenue for Chemtrade Logistics Income Fund in the last quarter and should help to keep cash flow and unitholder payouts steady.

CHEMTRADE LOGISTICS INCOME FUND (Toronto symbol CHE.UN; www.chemtradelogistics.com)is one of North America’s largest providers of removal services for oil refineries, base metal processors and other firms creating by-products such as acids and sulphur. Chemtrade converts these substances to useful chemicals like sulphuric acid. It then sells these to customers in a variety of industries.

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In the three months ended March 31, 2016, the trust’s revenue rose 3.1%, to $336.1 million from $326.0 million a year earlier. The gain mainly came from the lower Canadian dollar, which increased the value of Chemtrade’s sales in the U.S.

Cash flow fell 6.8%, to $42.3 million, or $0.61 a share, from $45.4 million, or $0.66 a share. Temporary problems at two of the company’s suppliers pushed up production costs for its chemicals.

Dividend Stocks: Cash flow supports monthly $0.10 distribution

Chemtrade’s long-term debt is a high $805.6 million, or 67% of its $1.2 billion market cap. Most of that stems from its $900 million all-cash purchase of General Chemical in January 2014.

General makes a range of chemicals, including aluminum sulphate, aluminum chlorohydrate and ferric sulphate (all of which are used in water treatment). It also produces ingredients for prescription drugs and nutritional supplements. Even though its debt is high, Chemtrade’s steady cash flow will help to pay it down. Cash flow should also keep the trust’s distribution safe: its monthly payout is $0.10 a unit, for a high 6.8% yield.

Recommendation in Stock Pickers Digest: BUY.

For our recent report on another leading Canadian trust, read RioCan cuts risk, protects distributions.

For our advice on another advantage Canadian investors get with dividends, read The dividend tax credit provides a special bonus for Canadian investors.

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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