income trust

PEMBINA PIPELINE CORPORATION $25.49 (Toronto symbol PPL; Shares outstanding: 165.7 million; Market cap: $4.3 billion; TSI Network Rating: Extra Risk; Dividend yield: 6.1%; www.pembina.com) owns nine pipeline systems with a total length of over 8,000 kilometres. These pipelines pump oil and gas from fields in B.C. and Alberta to refineries, or feed into major pipelines, such as the Enbridge Pipeline System. Pembina also owns the Syncrude, Horizon and Cheecham pipelines, which pump crude oil from the Alberta oil sands. In addition, the company holds a 50% stake in the Fort Saskatchewan Ethylene Storage Limited Partnership. It also owns the Cutbank Complex, a network of natural gas gathering and processing facilities. In the three months ended June 30, 2011, Pembina’s cash flow rose 42.8%, to $83.1 million, or $0.50 a share, from $58.2 million, or $0.36 a share, a year earlier. That’s because producers shipped more oil and gas through Pembina’s pipelines....

BELL ALIANT INC. $27.25 (Toronto symbol BA: Shares outstanding: 228.7 million; Market cap: $8.9 billion; TSINetwork Rating: Above Average; Dividend yield: 7.0%; www.aliant.ca) continues to upgrade its network to attract new Internet customers and offset lower revenue from its traditional phone operations. In the three months ended June 30, 2011, Bell Aliant earned $0.43 a share (no comparable year-earlier figures are available, because Bell Aliant was an income trust). However, free cash flow per share (cash flow minus capital expenditures) rose 5.1%, to $0.83 from $0.79. That should let it keep paying quarterly dividends of $0.475 a share (annualized yield of 7.0%). Bell Aliant is still a buy.

Precision Drilling Corp., Toronto symbol PD, provides contract-drilling services to oil and gas producers. The company owns 360 drilling rigs in Canada, the U.S. and Mexico. We analyze Precision in The Successful Investor, our newsletter that recommends stock picks for conservative investors. Precision recently converted from an income trust to a regular corporation. Investors received one common share for each trust unit they held. The change was in response to Ottawa’s new tax on income-trust distributions, which came into effect on January 1, 2011....

Baytex Energy, $50.55, symbol BTE on Toronto (Shares outstanding: 117.7 million; Market cap: $5.8 billion; www.baytex.ab.ca), produces and explores for oil and natural gas in western Canada. The company converted from an income trust to a corporation at the start of 2011. In the three months ended March 31, 2011, Baytex’s cash flow per share was unchanged at $0.96 from a year earlier. Revenue rose 10.9%, to $290.3 million from $261.8 million. Baytex’s average daily production rose 8.0%, to 46,902 barrels of oil equivalent (including natural gas) from 43,425 barrels. The company’s production is weighted 82% to oil (68% heavy oil from the Alberta oil sands and 14% light oil) and 18% to natural gas. The company’s $591.4 million of long-term debt is a low 10.2% of its market cap....

Slowing economic growth and concerns about high U.S. and European debt continue to dampen prices for commodities, like oil, coal and copper. However, rising demand from fast-growing regions, such as Asia and Latin America, should help support resource prices over the long term. The best way to protect the Resources part of your portfolio from volatile commodity prices is with high-quality companies, such as these three. They also trade at attractive multiples to earnings and cash flow. CENOVUS ENERGY INC. $37 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 754.1 million; Market cap: $27.9 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.6%; TSINetwork Rating: Extra Risk; www.cenovus.com) operates three oil-sands properties in Alberta and one in Saskatchewan. Cenovus ships the heavy bitumen from these projects to refineries in Illinois and Texas. ConocoPhillips (New York symbol COP) owns 50% of these refineries, as well as 50% of Cenovus’ two main oil-sands projects. Cenovus also owns conventional oil and natural gas properties....

Ag Growth International Inc., $39.40, symbol AFN on Toronto (Shares outstanding: 15.5 million; Market cap: $567.5 million; www.aggrowth.com), is a leading maker of portable and stationary grain-handling, storage and conditioning equipment. The company is based in Winnipeg. The company sells its products through dealers and distributors in 48 states and nine provinces, as well as in overseas markets, including Russia, Ukraine and Kazakhstan. Ag Growth gets about 63% of its sales from the U.S., followed by Canada (22%) and overseas (15%). The company began as an income trust. It first sold units to the public at $10 each, and began trading on Toronto in May 2004. In June 2009, it converted to a conventional corporation and changed its name from Ag Growth Income Fund to the present form....

Real estate investment trusts (REITs) are exempt from Ottawa’s income-trust tax, which came into effect on January 1, 2011. That exemption makes REITs’ high yields more attractive, because most trusts have converted to corporations or cut their distributions in response to the new tax. Our REIT recommendations have all moved up, but we still think they offer attractive long-term returns at relatively low risk. ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST $22.90 (Toronto symbol AP.UN; Units outstanding: 40.1 million; Market cap: $1.1 billion; TSINetwork Rating: Extra Risk; Dividend yield: 5.8%) owns office buildings in Toronto, Montreal, Quebec City and Winnipeg. These mainly Class I properties contain over 6.7 million square feet of leasable area....

The federal government’s tax on income-trust distributions has now been in effect for a little more than six months, since January 1, 2011. However, Ottawa feels the income-trust business structure is still appropriate for real estate investment trusts (REITs), so it has exempted REITs from the new tax. That’s great news for Canadian income seekers. What’s more, as we predicted in our Canadian Wealth Advisor newsletter, most REITs have moved up in the past year—including our recommendations. That’s because REITs’ high yields have attracted a lot of investor attention as trusts converted to corporations, or cut their distributions in response to the new tax....

DUNDEE REIT $32.85 (Toronto symbol D.UN; TSINetwork Rating: Speculative) (416-365-3535; www.dundeereit.com; Shares outstanding: 38.9 million; Market cap: $2.0 billion; Dividend yield: 6.7%) owns and manages 14.7 million square feet of office, industrial and retail space. The trust has a high 96.1% occupancy rate. In the three months ended March 31, 2011, Dundee’s revenue rose 57.4%, to $91.0 million from $57.8 million a year earlier. That’s mainly because the trust bought about $475 million of new properties in the quarter, mostly in Ontario. Dundee’s cash flow rose 72.9% in the quarter, to $28.8 million from $16.6 million. Cash flow per unit rose just 1.9%, to $0.55 from $0.54, on more units outstanding. (The trust issued units to pay for the acquired properties.)...

Canfor Pulp Products, $17.60, symbol CFX on Toronto (Shares outstanding: 35.5 million; Market cap: $1.3 billion; www.canforpulp.com), is one of the largest producers of northern softwood kraft pulp in Canada. It is also a major producer of kraft paper. The company converted to a corporation from an income trust on January 1, 2011. That’s when Ottawa’s tax on income-trust distributions took effect. Prior to its conversion, it was called Canfor Pulp Income Fund. In the three months ended March 31, 2011, Canfor Pulp reported cash flow of $0.77 a share. That’s up 35.1% from $0.57 a unit a year earlier. Higher pulp prices and lower operating costs were the main reasons for the increased cash flow....