Trust Fever Spurs These Telecom Stocks

Article Excerpt

Both BCE and Telus have unveiled plans to convert into income trusts, which helped spark a rise in their stock prices. Canada’s other big telecom company, Manitoba Telecom, moved up on rumors that it too would convert. The trust structure will let BCE and Telus avoid a big tax increase in the next few years as certain tax shelters expire. But investors have higher payout expectations of a trust compared with a regular company. Telecom companies must invest large sums in new equipment, or risk losing customers. These costs could hurt BCE’s and Telus’s ability to raise future cash distributions. The temptation to fund new investments by selling more units could also hurt the value of the existing units. Other risks include deregulation of the phone industry, which has already eroded the core business of these three companies. Concerns over lost tax revenue from big corporations like BCE could prompt the government to change the way it taxes cash distributions. We feel the gains from…

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