income trust

Colabor Group, $11.55, symbol GCL on Toronto (Shares outstanding: 19.7 million; Market cap: $227.1 million), sells and distributes food and other products to customers in the retail and food-services businesses. Its clients are mainly grocery stores, convenience stores, cafeterias, restaurants and hotels. Colabor converted from an income trust to a conventional corporation last year. The company continues to report rising revenue and cash flow. That cash flow appears to be enough to let Colabor continue paying its high dividend, which now yields 13.1%. The company’s long-term debt of $122.5 million is a manageable 53.9% of its market cap. Colabor has grown quickly over the last few years, mainly by purchasing other related firms. As a result of its acquisitions, the company has goodwill and intangibles of $209.1 million, or a high 92.1% of its market cap. That raises the risk of a future writedown, but the company’s acquisitions are performing well so far....

Atlantic Power Corp., $11.93, symbol ATP on Toronto (Shares outstanding: 60.4 million; Market cap: $720.6 million), owns interests in 12 power plants located near large U.S. cities in Florida, California, New Jersey, New Mexico, Maine, Texas and Washington State. These plants have a total generating capacity of 1,823 megawatts; Atlantic Power’s share is 807 megawatts. The company also owns an 84-mile (135 kilometre) power-transmission system in California. The Caisse de Dépôt et Placement du Québec owns 19% of the company. Atlantic Power originally set itself up as a type of income trust in 2004. But unlike most trusts, it issued Income Participating Securities instead of regular trust units. Each Income Participating Security consisted of one common share and one debt security. This structure made it easier for U.S.-based corporations like Atlantic Power to gain access to Canada’s income-trust market. Atlantic Power first sold Income Participating Securities to the public for $10.00 each, and began trading on November 18, 2004. In response to Ottawa’s plan to tax income trusts starting January 1, 2011, Atlantic Power converted to a regular corporation on November 27, 2009. Investors received one common share for each Income Participating Security they held....

The best real estate investment trusts (REITs) continue to have high occupancy rates. They are also renewing leases at a steady pace. As well, today’s low interest rates are helping many REITs save money on mortgage refinancing, or fund expansion. Most REITs, including our recommendations, are exempt from Ottawa’s new income-trust tax, which comes into effect on January 1, 2011. We still advise against overindulging in REITs. But if you stick with REITs that have steady cash flows and sound balance sheets, like the three we recommend on this page, you should earn attractive long-term returns at relatively low risk....

Peyto Energy Trust, $13.32, symbol PEY.UN on Toronto (Units outstanding: 114.9 million; Market cap: $1.5 billion), produces and explores for oil and natural gas in Alberta. Its production is weighted 84% toward gas and 16% to oil. Peyto had cash flow of $0.39 a unit in the three months ended September 30, 2009. The stock trades at 8.5 times Peyto’s annualized cash flow, based on that quarter. The company’s $420 million of long-term debt is a reasonable 28% of its market cap. The units yield 10.8%. Peyto paid out a high 91% of its cash flow as distributions in the latest quarter. That may force the trust to cut its distributions when Ottawa’s new income-trust tax takes effect in 2011....

Ottawa’s new tax on income trusts comes into effect just over a year from now, on January 1, 2011. When it does, it will put trusts on an equal footing with regular corporations. Right now, trusts pay out a high percentage of their cash flows to their unitholders. This lets them avoid paying corporate taxes. It also gives many of them significantly higher yields than a lot of dividend-paying common stocks. The new tax will eliminate these income-tax benefits. That will prompt some income trusts to convert to conventional corporations. Others may choose to remain as trusts. (For our latest advice on income trust investing, and how trusts should fit into your overall portfolio, be sure to download our free report, “Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada.”)...

CAPITAL POWER INCOME L.P. $13.91 (Toronto symbol CPA.UN; Shares outstanding: 53.9 million; Market cap: $749.7 million; SI Rating: Extra Risk) is the new name of Epcor Power L.P. The change was made because Capital Power Corporation (Toronto symbol CPX) bought Epcor Utilities’ interest in Epcor Power L.P. Capital Power Income has interests in 25 power plants in Canada and the U.S. These generate 1,400 megawatts in total. In the three months ended September 30, 2009, Capital Power Income’s revenue rose 16.5%, to $155.5 million from $133.5 million. Cash flow per unit fell 10.4%, to $0.69 from $0.77. The drop was mainly caused by the weak economy, which pushed down power demand in Ontario and North Carolina....

TransForce Inc., $6.92, symbol TFI on Toronto (Shares outstanding: 95.3 million; Market cap: $659.2 million), provides a variety of trucking services across Canada. Exclusive partnerships extend its reach into the U.S. The company’s trucking fleet is the largest in Canada, with 6,630 trucks and 12,040 trailers. Montreal-based TransForce was an income trust from September 2002 to May 2008. The company has four main divisions:...

INNERGEX POWER INCOME FUND $9.95 (Toronto symbol IEF.UN; Shares outstanding: 29.4 million; Market cap: $292.6 million; SI Rating: Extra Risk) owns interests in 10 hydroelectric power plants in Quebec, Ontario, British Columbia and Idaho, as well as two wind farms in Quebec. The company’s hydroelectric plants in Quebec are at La Chaudiere, Saint-Paulin, Montmagny and Windsor. There are also three facilities at Portneuf. The Ontario plant is at Batawa, the B.C. station is at Rutherford Creek and the Idaho facility is at Horseshoe Bend. Innergex’s 10 hydroelectric plants have long-term power agreements that average 14.9 years. The two wind farms have 20-year power purchase agreements with Hydro-Quebec....

Ag Growth International Inc., $32.05, symbol AFN on Toronto (Shares outstanding: 12.9 million; Market cap: $414.7 million), is a leading maker of portable and stationary grain-handling, storage and conditioning equipment. Ag Growth sells its products through 1,400 dealers and distributors in 48 states and nine provinces, as well as in overseas markets, including Russia and Kazakhstan. Ag Growth gets about 63% of its sales from the U.S., followed by Canada (32%) and overseas (5%). 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. Last June, it converted to a conventional corporation and changed its name from Ag Growth Income Fund, symbol AFN.UN on Toronto, to the present form....

TimberWest Forest Corp., $3.62, symbol TWF.UN on Toronto (Units outstanding: 77.8 million; Market cap: $281.6 million), is an income trust that operates in the forest-products industry. The trust stopped paying distributions earlier this year. TimberWest is struggling with very poor markets for its products, and will likely continue to struggle for some time. The trust is selling land to real-estate developers to raise cash and cover its debt covenants. We don’t recommend TimberWest Forest....