CHEMTRADE LOGISTICS INCOME FUND $17.58

CHEMTRADE LOGISTICS INCOME FUND $17.58 (Toronto symbol CHE.UN; TSINetwork Rating: Speculative) (416-496-5856; www.chemtradelogistics .com; Units outstanding: 69.1 million; Market cap: $1.2 billion; Dividend yield: 6.8%) 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.

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.

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.

Chemtrade remains a buy.

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