“This Google Partner is just one of the 18%+ high-yield trusts you can snap up now.”
This ad comes in from Roger Conrad for his Canadian Edge newsletter, one of several from the great KCI marketing machine that, like almost every other major financial newsletter publisher, is headquartered a stone’s throw from the stunningly opulent and energy efficient Stock Gumshoe central office.
I have yet to run into Roger Conrad at any of our 1,100 Starbucks locations, but if I do I’m sure he’ll talk my ear off about the great opportunity available in Canadian Income Trusts (also called Royalty Trusts and Business Trusts). And this is a teaser for another one of those.
His newsletter will run you about $400 a year … the answer to this teaser? Priceless. Just read on!
“… nothing prepared us for the surge in returns that these trusts are showering on our readers now. And at the pace these trusts are moving, we should see returns up 100%, exactly double, on our favorite picks before the year is out.
“And these cash-rich trusts are still a bargain. Share prices, mostly beaten down last year, are still below our buy targets, so you’ve got a great entry point. And with yields up to 22%, there’s just no way you can miss.”
That’s how Conrad starts us off … then he gets into some of the specifics of this particular trust that he thinks we should buy. And, if my email load is an indication, this one is the pick that really caught the attention of my readers …
“This Google Partner Pays You 17.6% (Google Pays You Zip)
“How can two turbo-charged companies in the same web business have such a different way of rewarding investors (or not?)
“Like Google, this trust is a runaway, internet-based success. Unlike Google, this company pays you a monster-sized yield of 17.6%!
“This trust is Canada’s undisputed leader in online media with over 20 web mega-sites and 200 ‘publications’. Its four top brands help consumers find everything from jobs to homes to apartments to cars — to the best shopping bargains around.
“And they’ve just inked a spanking new deal that’s sure to please both consumers and small businesses alike — and send their ad revenues through the roof — yet again.
“Many boutiques, restaurants, clinics, hairdressers, retailers, service outfits — you name it — do not have a website … with this new trust venture, any small business can convert its print sales material into a search-optimized web presence!”
Some specifics, perhaps?
“Their internet revenue alone surged a whopping 38.4% in the third quarter, not counting their expansions!”
Conrad thinks you’ll see a 20% dividend in 2009, and that the shares will double in less than nine months. So what is it?
Feed all that into the ‘ol Thinkolator, which is admittedly a bit squeaky after our latest cold snap, and after warming up for a few minutes we discover that this is …
Yellow Pages Income Fund (YLO-UN in Toronto, YLWPF on the pink sheets.)
Unlike some pink sheets shares there is at least some volume, so the prices ought to be a pretty close match to the Toronto shares, just make sure to check the current currency exchange rate before jumping in if you go that route (yesterday the units closed in Toronto at C$6.46, and closed on the pink sheets at $5.17 — that’s within a penny as of the last exchange rate check I made).
What do we know about these folks? The Trust is basically made up of the Yellow Pages Group, which publishes online and print directories and makes its money from local advertising; and Trader, which publishes “vertical media” stuff — publications that advertise local bargains, auto sales, real estate etc. (the kinds of things you’ll see distributed free in any US city, I assume it’s the same in Canada — Auto Trader, Penny Saver, New Homes Guide, etc.).
And they do also have an online presence, and they are a Google partner — they are a reseller of AdWords for Google in Canada, and help customers optimize online ad campaigns and develop online advertising strategies, and they also publish their directories and Trader publications online. Their online revenue did grow 38.4% in the last quarter, but it’s also important to note that the print publications still provide the lion’s share of their money — online revenues were only about 15% of total revenue last quarter. Saying that they’re in the “same web business” is perhaps a bit of a stretch, though it’s technically true that both of them are, to some degree, online advertising companies.
So … does that sound familiar? That’s a very similar business to the big US yellow pages publishers, R.H Donnelly and Idearc — and neither one has exactly been a fabulous investment in recent years, so the problems that those companies ran into might be signposts to use in your search for any skeletons in the closets at YLO.
Both Idearc and R.H. Donnelly were spun off from their former parents (Verizon and Dun and Bradstreet, respectively) with massive debt loads that they were expected to be able to handle thanks to their high margin, predictable business performance (dry cleaners and restaurants don’t usually cancel their yellow pages ads). Though they were touted by bottom-fishers all the way down, the business wasn’t strong enough to handle that leverage last year — both fell more than 99% in 2008, and both are now delisted from the major exchanges and trade on the pink sheets at pennies a share.
Yellow Pages appears to be in far better shape than that, at least so far — they do carry a lot of debt, but they also reported good earnings last year … we’ll see if the problems that seem inevitable for the Canadian economy drag down the business, but the yield at the current rate is just about 18%. The trust’s investor relations page is available here if you’d like to dig in and start your own research.
So … it’s not exactly Google, but maybe that’s a good thing. What do you think?
full disclosure: I own shares of Google. I do not currently own any other stock mentioned above, and will not trade in any shares mentioned for at least three days.
Personal Capital is an advertiser with Stock Gumshoe, but Travis also uses it every day for his personal accounts and finds it invaluable. Here's what he said: "They offer a great (and genuinely FREE) 'second opinion' for your financial plan, but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.