rrsp

EPCOR POWER, L.P. $13.80 (Toronto symbol EP.UN; Shares outstanding: 53.9 million; Market cap: $743.8 million; SI Rating: Extra Risk) has interests in 26 power plants in Canada and the U.S. In total, the plants generate 1,502 megawatts. In the three months ended December 31, 2008, EPCOR’s revenue fell 9%, to $103.8 million from $114.1 million. The decline came mostly from currency-related factors. Cash flow per unit fell 6.3%, to $0.59 from $0.63, mainly because of higher operating costs at some plants. EPCOR pays a quarterly distribution of $0.63 per unit, for a yield of 18.3%. The company paid out 107% of its cash flow in the latest quarter. The high level came largely from unusually high maintenance costs. That spending has now slowed, but the payout ratio could still be as high as 102% this year. That makes a distribution cut a possibility. However, the trust has room to cut while maintaining a high yield....

There are, in some cases, ways of structuring your business affairs using offshore investing companies or trusts that can cut or defer your taxes. You may also be able to protect your assets from legal judgments rendered in Canada if you move them to accounts in certain foreign jurisdictions. Earnings in an “offshore account” are generally lightly taxed, or not taxed at all, by the country where the bank or brokerage account is located. This includes jurisdictions like Switzerland or the Cayman Islands. However, Canadian residents are obliged to report any income they earn through foreign investing on their Canadian tax returns. (You can only claim tax-exempt “non-resident” status without giving up your citizenship by staying outside of Canada for more than half of a tax year.)...

If you are interested in gold investing, we recommend staying away from buying gold bullion, coins (unless you collect them as a hobby) or certificates representing an interest in bullion. Unlike stocks, commodity investments like gold bullion do not generate income. Instead, they come with a continuing cash drain, for management, insurance and so on. However, if you do want to hold bullion as part of your gold investing, then SPDR Gold Shares are a relatively low-cost and liquid way to do it. SPDR Gold Trust, symbol GLD on New York, is an investment trust that aims to reflect the performance of the price of gold bullion, less the trust’s expenses. SPDR’s sole assets are gold bullion, and, from time to time, cash. Expenses for SPDR Gold Shares are 0.4% of assets per year....

Registered education savings plans (RESPs) are one of the best ways to save for a child’s post-secondary education. RESPs are a government-assisted form of savings, similar to registered retirement savings plans (RRSPs).

How RESPs work

There are no annual limits for contributions to RESPs. However, RESPs have a lifetime limit (from birth to age 17) per child of $50,000. Only the first $2,500 of contributions per year to RESPs will receive a Canada Education Savings Grant (CESG) from the federal government. Under the CESG, the government will match a portion of what you put in: for the first $500, the matching amount is dictated by your family income, and for the subsequent $2,000, the government will match at a rate of $0.20 for every dollar contributed. The net family income amounts are indexed to inflation each year....

PRECISION DRILLING TRUST $8.81, Toronto symbol PD.UN, has completed its acquisition of U.S.-based contract driller Grey Wolf Inc. The trust paid roughly $1.15 billion in cash and $250 million in new units for Grey Wolf. Precision finalized the terms of the Grey Wolf takeover in August, 2008. Since then, the price of Precision’s units has dropped 60%, mostly due to a 70% drop in oil prices, from $120 U.S. a barrel to $40 U.S. The drop in oil and natural gas prices prompted many producers to cut spending on new exploration in 2009, which hurts Precision’s profit outlook. Precision’s market cap is now just $1.1 billion, which is 21% below the $1.4 billion that it paid for Grey Wolf. Precision also needed to arrange $1.6 billion U.S. in new credit facilities to buy Grey Wolf. That greatly increased its long-term debt, which was $231.8 million (Canadian) at September 30, 2008. To help free up cash for debt repayments, Precision has now cut its monthly cash distributions by 69.2%, from $0.13 a unit to $0.04. The new annual rate of $0.48 yields 5.4%....

Starting in 2009, Ottawa’s new Tax-Free Savings Accounts (or TFSAs) will let you earn investment income — including interest, dividends and capital gains — tax free. The new accounts are open to Canadian residents who are at least 18 years old and have filed at least one tax return.

A nice complement to RRSPs

Unlike RRSP contributions, TFSA contributions DON’T give you a tax deduction. But you pay NO tax on TFSA withdrawals. You’ll have a maximum you can contribute each year, regardless of income. It will consist of the sum of these three amounts:...

EPCOR POWER, L.P. $17.41 (Toronto symbol EP.UN; Shares outstanding: 53.9 million; Market cap: $938.3 million; SI Rating: Extra risk) owns 20 power plants in Canada and the U.S. with total generating capacity of 1,464 megawatts. In the three months ended September 30, 2008, revenues fell 10%, to $138 million from $153.4 million. The decline came mostly from currency related factors. Despite the lower revenue, however, cash flow per unit rose 8.5%, to $0.64 from $0.59. EPCOR pays a quarterly distribution of $0.63 per unit. That gives the units a current annual yield of 14.5%. The company paid out 101% of its cash flow in the latest quarter. But that high level came largely from unusually high maintenance expenditures. That spending has now slowed, and the payout ratio should drop below 100%. That should also let EPCOR hold its distributions steady....

FORDING CANADIAN COAL TRUST $85 (Toronto symbol FDG.UN) continues to trade below Teck Cominco Ltd.'s takeover offer of $82.00 U.S. in cash plus 0.245 of a Teck class B subordinate voting share. The offer is now worth $97.27 per Fording unit. The deal should close on October 30, 2008. As we recommended in August, 2008, you should sell your Fording units if you hold them outside of an RRSP. If you hold them in an RRSP, you should tender your units to Teck. NORTEL NETWORKS CORP. $1.79 (Toronto symbol NT) has cut its revenue and earnings outlook for 2008, due to slowing demand for telecommunications equipment, unfavourable foreign exchange rates and delays delivering certain products. Sell from your aggressive portfolio. PENGROWTH ENERGY TRUST $11 (Toronto symbol PGF.UN) has moved down lately along with oil prices. Lower prices could prompt Pengrowth to cut its monthly distribution of $0.225 a unit (24.5% yield). Even if the trust cut the rate in half, the units would still yield over 12%. Buy for your aggressive portfolio....

Despite a stream of nerve-rattling financial news, starting with the failure of the first U.S. bailout package, the Dow Industrials and the S&P 500 managed to hold above Monday’s lows this week until just before Friday’s close. It’s a mistake to read too much into this, of course. But it is encouraging to see these two indexes move sideways in this depressing news environment. The plunge to new lows by the Canadian market reflects the heavy resources content in our economy and stock market. The Resources sector stands to suffer in an economic setback, and that’s already begun to happen with the drop in oil, copper and other metals. In addition to the decline in our market, our dollar lost nearly four cents this past week, relative to the U.S. dollar. We continue to recommend that you spread your investments our across the five main economic sectors, and devote around a quarter of your portfolio to U.S. stocks. Market turnarounds often occur in times of high volatility and bad news. Our advice is to resist any urge you may feel to sell good-quality stocks, just because you fear they may go lower....

Today’s rebound in the market is reassuring, but I expect stocks to remain highly volatile for a month or more. After that, we could see a six-month rebound in prices. The U.S. bailout of major financial institutions raises inflation risk over the next few years, but it heads off panic. Nobody can predict market bottoms, but I suspect we are much closer to the bottom than the top. NORTEL NETWORKS CORP. $3.25, Toronto symbol NT, fell 50% this week after the company cut its revenue and earnings outlook for 2008. Due to slowing demand for telecommunications equipment, unfavourable foreign exchange rates and delays delivering certain products, Nortel now expects revenue for 2008 will be 2% to 4% lower than in 2007. It had earlier predicted that revenue would rise this year. Due to the lower revenues, Nortel will probably lose $0.39 U.S. a share in 2008. That estimate excludes the costs of a new restructuring plan. Nortel earned $0.37 U.S. a share before unusual items in 2007....