income trust

ENERPLUS CORP. $23.94 (Toronto symbol ERF; Shares outstanding: 181.2 million; Market cap: $4.3 billion; TSINetwork Rating: Extra Risk; Dividend yield: 9.0%) produces an average of 77,221 barrels of oil equivalent per day (weighted 55% to natural gas and 45% to oil). Its properties are mainly in Alberta, Saskatchewan, B.C., North Dakota and Montana, as well as the Marcellus Shale, which passes through Pennsylvania, New York, Ohio and West Virginia. In the three months ended December 31, 2011, Enerplus’ cash flow per share fell 5.4%, to $0.87 from $0.92. That’s mainly due to lower gas prices, which offset gains from higher oil prices. In 2011, the company sold 91,000 of its 201,000 acres of natural gas properties in the Marcellus Shale for $568 million U.S. It used the funds to continue rapidly expanding its exploration drilling....

BONAVISTA ENERGY $23.49 (Toronto symbol BNP; Shares outstanding: 162.5 million; Market cap: $3.8 billion; TSINetwork Rating: Extra Risk; Divd. yield: 6.1%; www.bonavistaenergy.com) explores for oil and natural gas in Alberta, Saskatchewan and B.C. It converted from an income trust to a dividend paying stock on December 31, 2010.

Bonavista produces an average of 71,636 barrels of oil equivalent per day, weighted 62% to gas and 38% to oil.

In the quarter ended September 30, 2011, Bonavista’s cash flow per share rose 6.3%, to $0.84 from $0.79.

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PEYTO EXPLORATION & DEVELOPMENT CORP. $18.87 (Toronto symbol PEY; Shares outstanding: 133.1 million; Market cap: $2.5 billion; TSINetwork Rating: Extra Risk; Dividend yield: 3.8%; www.peyto.com) produces and explores for oil and natural gas in Alberta. In response to Ottawa’s income trust tax, Peyto converted from a trust to a dividend paying stock on December 31, 2010.

Peyto’s average daily production of 36,390 barrels of oil equivalent (including natural gas) is 89% gas and 11% oil.

In the three months ended September 30, 2011, Peyto’s cash flow rose 34.8%, to $0.62 a unit from $0.46 a year earlier. The shares trade at 7.1 times the company’s forecast 2012 cash flow of $2.65 a share. Peyto’s long-term debt of $490 million is a low 19.6% of its $2.5-billion market cap.

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ISHARES CDN REIT SECTOR INDEX FUND $15.72 (Toronto symbol XRE; buy or sell through brokers; ca.ishares.com) holds the 13 Canadian real estate investment trusts (REITs) in the S&P/TSX Capped REIT Index. The weight of any one REIT is limited to 25% of the ETF’s value.

iShares CDN REIT’s expenses are just 0.55% of its assets. The fund yields 4.7%.

As mentioned, RioCan REIT is the fund’s largest holding, at 23.9%, followed by H&R REIT (13.1%), Canadian REIT (8.5%), Calloway REIT (8.2%), Dundee REIT (7.0%), Boardwalk REIT (6.9%), Canadian Apartment Properties REIT (6.5%), Primaris Retail REIT (5.8%), Allied Properties REIT (4.4%), Cominar REIT (4.4%), Chartwell Seniors Housing REIT (4.3%), Artis REIT (4.3%) and Extendicare REIT (2.3%).

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Liquor Stores N.A. Ltd., $17.17, symbol LIQ on Toronto (Shares outstanding: 22.6 million; Market cap: $388.0 million; www.liquorstoresna.com), is Canada’s largest private liquor store operator, with 238 outlets. Of that total, 174 are in Alberta, 35 are in B.C., 20 are in Alaska and nine are in Kentucky. Liquor Stores’ banners include Liquor Depot, Liquor Barn and Brown Jug. Alberta privatized retail liquor sales in 1993, prompting Irv Kipnes to found Liquor Depot and Henry Bereznicki to start Liquor World that year. Kipnes and Bereznicki, both Edmonton-based real estate developers, merged their companies and founded Liquor Stores Income Fund in 2004. The fund first sold units to the public at $10 and began trading on Toronto in September 2004....

Wajax Corp., $40.51, symbol WJX on Toronto (Shares outstanding: 16.6 million; Market cap: $672.5 million; www.wajax.ca), sells and services heavy equipment, including cranes and lift trucks. It also sells related parts (such as bearings, motors, hoses and fittings) and power systems (including diesel engines and transmissions). Wajax operates through a network of 117 branches across Canada. Its customers are in the natural resources, construction, manufacturing, industrial processing and transportation industries. In the three months ended September 30, 2011, the company’s revenue rose 22.9%, to $361.9 million from $294.4 million a year earlier. However, earnings fell 8.6%, to $17.9 million, or $1.08 a share, from $19.6 million or $1.18 a share. Cash flow per share rose 26.4%, to $1.82 from $1.44. That’s because the company had to start paying income tax in the latest quarter (a total of $6.7 million). It did not pay taxes a year earlier, when it was still an income trust....

RioCan REIT is our #1 safety-conscious pick for 2012. The trust would be a sound addition to the Manufacturing segment of almost any investor’s portfolio. But if you want to hold a range of REITs, you can do so through the iShares CDN REIT Sector Index Fund, an ETF lets you hold 13 in all. And you’ll still have lots of exposure to RioCan, because it’s the ETF’s largest holding. Here’s a closer look: ISHARES CDN REIT SECTOR INDEX FUND $15.72 (Toronto symbol XRE; buy or sell through brokers; ca.ishares.com) holds the 13 Canadian real estate investment trusts (REITs) in the S&P/TSX Capped REIT Index. The weight of any one REIT is limited to 25% of the ETF’s value....

PEYTO EXPLORATION & DEVELOPMENT CORP. $18.87 (Toronto symbol PEY; Shares outstanding: 133.1 million; Market cap: $2.5 billion; TSINetwork Rating: Extra Risk; Dividend yield: 3.8%; www.peyto.com) produces and explores for oil and natural gas in Alberta. In response to Ottawa’s income trust tax, Peyto converted from a trust to a dividend paying stock on December 31, 2010. Peyto’s average daily production of 36,390 barrels of oil equivalent (including natural gas) is 89% gas and 11% oil. In the three months ended September 30, 2011, Peyto’s cash flow rose 34.8%, to $0.62 a unit from $0.46 a year earlier. The shares trade at 7.1 times the company’s forecast 2012 cash flow of $2.65 a share. Peyto’s long-term debt of $490 million is a low 19.6% of its $2.5-billion market cap....

Ottawa’s tax on income trust distributions took effect over a year ago, on January 1, 2011. Most trusts have already converted to corporations in response. Real estate investment trusts (REITs) are exempt, however, so they will remain as trusts. All but one of our trust recommendations have converted. We still like the long-term outlook for all these picks, and we see them as buys. All of our REIT recommendations remain buys, as well....

ARC RESOURCES $25.52 (Toronto symbol ARX; Shares outstanding: 287.6 million; Market cap: $7.3 billion; TSINetwork Rating: Speculative; Dividend yield: 4.7%; www.arcresources.com) produces oil and gas in western Canada. Its average daily production of 85,178 barrels of oil equivalent is weighted 67% to gas and 33% to oil.

In the three months ended September 30, 2011, ARC’s cash flow per share rose 17.5%, to $0.74 from $0.63. That’s because the company raised its production. It also benefited from higher oil prices.

ARC converted from a trust to a corporation on January 1, 2011, in response to Ottawa’s income-trust tax. However, ARC has $2.2 billion of tax pools that are letting it offset the tax and maintain its $0.10 monthly payout (it now yields 4.7%).

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