More High Income Trusts from Roger Conrad

More high-yield picks teased by Canadian Edge

By Travis Johnson, Stock Gumshoe, October 20, 2009

Yesterday I looked at Conrad’s latest teaser for his Canadian Edge newsletter, and I promised to follow up today — if you want the big picture and the broader look at trusts in general, start with yesterday’s article here, but if you’re ready to just look at a couple teasers and sniff out the companies with me, read on!

Here’s the next company we’re looking for:

“An energy company that does it all. Much of Canada’s economy is based on energy and natural resources, and many income trusts are in the business of oil and gas extraction. While these energy trusts have had their high-flying moments, most are in the doghouse these days; you won’t find me talking much about them in this letter. Diversified energy companies are a different story though.

“This trust has interests in gas extraction, pipelines, gathering and processing, energy services, even power generation including “green” wind power. With a three-year growth rate of 18%, there’s even the prospect of long-term capital appreciation. In the short term though, this company’s shares are one of the best bargains around – making the 16.94% dividend too tempting to pass up.”

This one pretty much has to be AltaGas Income Trust (ALA-UN in Toronto, ATGFF on the pink sheets), but the distribution yield has dropped a bit since Conrad first penned this teaser, it now stands at about 11%. I actually find this one very interesting, it’s similar in some ways to many of the US MLP midstream energy companies, with a fairly solid transportation, gathering, processing and transmission business, though they also are invested in windfarms and hydroelectric generation, and they bought 5% of the geothermal co. Magma Energy earlier this year. They are also planning to convert to a corporation in the second half of next year, which means that they can re-acquire their natural gas utility that they had to spin off when they converted into a trust, so it will also have that steady utility business to add to the portfolio starting probably next year sometime.

The current yield on this one is a little over 11%, quite a bit nicer than most of the MLPs that are fairly similar in the US — it’s certainly possible that the distribution will shrink when they convert to a corporation, but they’ll still have a nice steady cash flow business and should be able to pay a substantial dividend. They have, for whatever it’s worth, been steadily raising the dividend each year for the past couple years.

Next?

“Growth + income in a sheltered oil & gas sector. When you drill for oil and gas, you have your ups and your downs. But regardless of market price, producers rarely turn off the spigots. It’s too costly. No, they keep pumping the stuff to the refineries and downstream markets, through … pipes.

“Say hello to the pipeline industry – the stable, fluctuation-resistant end of the energy biz. Back last June when oil prices were sky-high, this trust’s shares were up near US $19. Now the price has been beaten back down to around US $12 by investors who don’t necessarily understand the fine points of energy economics.

“That offers you a growth + income opportunity with great safety. This trust reports record growth and income in every recent year, with a growth rate around 35%. You just sit back and collect that (yes, monthly) 12.08% distribution check while you wait for share prices to start rising again.”

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That’s not a ton of specific clues, but from what we get I’d wager that this is Pembina Pipeline Income Trust (PIF-UN in Toronto, PMBIF on the pink sheets). The price did hit about US$19 at the highs in the Summer of 2008, and like the others it’s a bit higher priced now than when Roger threw this teaser together — it’s just under US$15 now, with a yield of almost exactly 10%. For US investors I’m not sure that I’d focus on Pembina over any of the solid US MLPs unless you’re specifically trying to get into the Canadian dollar — not that there’s anything wrong with Pembina, but I don’t know that their structure or business is particularly unique compared with US MLPs that give you some nice tax advantages.

They do have a pretty broad presence across the main oil and gas region in Western Canada, with a pipeline network spanning BC and Alberta and serving conventional crude oil and nat gas installations, and it appears that their planned growth is largely from serving the oil sands in Alberta (so that’s likely to give them some price sensitivity if oil really drops again and folks take oil sands projects offline), and from growing their midstream and processing businesses. Interesting company, and I’d agree at a quick glance that it’s probably quite safe and steady, but I don’t see a lot that would cause me to pick Pembina, with the uncertainty over what their distribution might be following the tax changes, over someone like Kinder Morgan or Enterprise Products Partners in the US. That said, it’s possible that they’ve announced promising plans for their post-2011 income-producing potential, I haven’t looked at all of their investor presentations and announcements.

That’s about enough sleuthifying for one day, we’ve also got a food distributor and a construction company teased — if you’re interested, I’ll try to get to those in a future writeup. Enjoy the rest of your day!


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John R. Hansen
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John R. Hansen
October 20, 2009 1:08 pm

The so called CANROYS are high dividend payers until they cut the dividend. I was sold on Advantage Income Trust AAV as a sure thing natural gas seller. The dividend ultimately went to the big O after a number of cuts accompanied by well articulated excuses. I got out with a 50% loss. Other shareholders were not so lucky.

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David Samuels
David Samuels
October 20, 2009 1:44 pm

Pembina has said they will continue their current dividend for at least five years based on their current contracts. An advantage this pipeline company has over US MLPs is that the dividend is paid in Canadian dollars (a commodity based currency) and is a way for US investors to hedge against US dollar inflation.

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Phil
Phil
October 20, 2009 2:06 pm

I subscribed to Roger’s service in the past and owned both of these.
One advantage is the currency conversion. Canada has a real economy based on energy and resources, we have the US dollar and printing presses. He is not a hype guy like most of the emails you get. He provides a ton of information in his service regarding risk, payout ratios, etc.
He actually steers you away from high paying non-sustaianble dividends of many companies.
You could do well with him.

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Reuben
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Reuben
October 20, 2009 2:14 pm

I am ashamed to admit how much I have lost on CANROYS. I am holding three of them in a IRA account, so in addition to the dividend reductions I get hit with the 15% Canadian withholding tax which I can’t recover. In spite of the dividend yields IMHO they are not good investments. I think it may be time for me to dump them.

Todd
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Todd
October 20, 2009 2:36 pm

I am new to the stock gumshoe. What are some of the solid US MLP’s beside Kinder Morgan and EPP that have been discussed?

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john
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john
October 20, 2009 10:08 pm

Yesterday (the 19th), you guessed that the latest Stansberry “Got to Act Before Today (the 20th)”– because of an alleged significant imminent announcement– was Boston Scientific (BSX).

I googled this company and the financial data seemed to validate the Stansberry excerpts you published coupled with your analysis.

So I went out on a limb and purchased 400 shares.

Overnight, BSX announced their disappointing quarterly results and projections (without a word about any new product breakthrough), and their stock tanked 15.65%……

I must say that, overall, I’ve lost money on the
Stansberry investment letters to which
I’ve subscribed over time: Advanced Income; Porter
Stansberry’s Investment Report; True Wealth; ; Inside Strategist; Extreme Value; Phase 1 Investment Report; and S&A Resource Report.

The only two I’m making any money on are his 12%
Letter and the FDA Report, with small % gains.

In striking contrast with all the bombastic urgent hyperbole of the Agora and Stansberry Reports, Robert Hsu writes extremely intelligent and well documented Newsletters, both of which have made me a lot of money.

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george(pennystockinvestor)
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October 21, 2009 3:35 am

“Thanks for the article.For Hot Penny stock/Pinksheet picks, and daily video analysis subscribe on http://www.hypergrowthstock.com

Tim Sullivan
Member
Tim Sullivan
October 21, 2009 6:25 am

These energy themes with yield have really been working well for me. Some like the MMR-M (CVT) have short term life expectancies, the REP-A looks like it is heading for a call. The AES-C (cvt) is just not providing any chance at all to get in there on any dip whatsoever. Enough with the K-1 forms I just hate them! The turbo tax geeks say “very smooth .. no problem” I have also been using MTP,KYE,ENY and AMJ. The DAYFF and PMGYF are a couple that I have added in the last 3 months off the $2.50 gas. I earlier sold the BTE on valuation. I have been doing real well in BLIAF and just doubled up at $26.35 US$. For shelter from these oil dips, rotations out of some of the O&G trusts into both BLIAF and NFYIF seem to be working for me. So here we are in the start or middle of the long predicted OCt correction? I added to MTP and BCF yesterday but could not catch up to NGZ. The O’Riellians are very bitter in their savaging in yahoo posts about Flaerhty and his Halloweenie Massacre. They thought this 2011 thing was bad. Now how do they feel about the new 2% tax in Brasil? Canada.. most likely a reasonably safe place to invest, a hard currecy, no quant easing yet,three of the ten strongest banks in N/A. I like this ATGFF idea. Too bad I took that BRPFF off the table and also sold the ATPWF on some bad advice from some guy I finally fired. I just recently added to ATBUF, which like BRPFF is a wholly subsidised and nearly all just another part of BAM. Bruce Flatt being the so called WB of Canada. Lumber futures keep pivoting on $1.80. Dips below $1.70 seem to offer chances at ATBUF below $7.40 US. The Timber West has gone away in the debacle? The Canfor pulp thing looks interesting with the price move off the bottom a quad and China having a wood fibers shortage. Pine beetles a risk. With the dry bulk freight so depressed “stuff” is now so cheap to move it is hardly that big a deal from where it is sourced. Look what the global glut of LNG has done to the North American gas market. The whole gas market has been globalized by these LNG carriers contracted for at $18-$20/MM~BTU global gas, continuing to be dumped on the owners by the ship builders.
Thanks for the deciphering of Alta I had it on a watch list somewhere but have not followed it as of late. So many things are now getting the perception of now being fully valued. To this point it has I suppose just been a rebound from a global panic. Going forward it looks more to be as against some issues that appear unsustainable. Gold & Oil vs US treasuries. One is forming a huge bubble and we are as on a huge unstable but still even plain awaiting the clash of the ignorant armies to determine which way the curve of the earth will tilt. I still own the shares of AVV. Another that has succeeded in what the Army found Arlo incapable of. REP-A went to below $17 and BP below $30. Even with storage 110% full gas is not moving precipitously towards $2 as some still expect. Perhaps the limit has been breached on gas&oil on their BTU equivalences. NFYIF is doing all they can!adah EH? USA Women the favorites for GOLD in Ice hockey!

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Henry Chakoian
Henry Chakoian
October 21, 2009 7:29 am

I learned of Pembina in Puerto Vallarta from a Canadian day trader. Checked it out and bought 1K at $9.
in 2004. Div. was 126 monthly, minus %15 tax. High as 18, then dropped to 9 after the Holloween massacre. Back above 14 and div is now168 monthly.I still expect the
Canadian govt to rescind the coming tax laws pertaining to energy and mining trusts.They may apply to other trusts in 2011, but energy and mining are too critical to the
Canadian economy. Even if I am wrong, PMBIF will continue the generous div program for years. As oil prices rise, Canadian production will follow and PMBIF will transport it. Herach.

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Tim Sullivan
Member
Tim Sullivan
November 1, 2009 8:10 am

I have now added 3 partial positions to the Alta idea. On this Friday I was finally able to get another 100 of AES-C @ $46.89. I also have added to NGZ as it finally gave it up. I have now re-established a new position in ATPWF. The ATBUF seems to have some legs as the lumber futures for some un-explained reason are now well above $2.

I believe the construction company our author has illuminated is BIRDF Bird Construction. Too bad …When it was below $14 and oil was bouncing around $35 it was a great one. Maybe if this sell off gets very serious and we retest the July lows, oil and gas could drop enough oil could drop off below $60 again and make BIRDF a buy. It seems over valued at the current price. Bird while a general contractor is concentrated in the oil-sands construction and infrastructure business.

I dumped the whole MMR_M position for a nice gain on their rumblings of their being on the cusp of a major discovery @ $77.80. As an alternative I have beefed up my position in HL-C with it’s suspended cumulative distribution. Two other PM mining companies have just reported monster profits. Hecla reports on Tuesday. A bump up to a 52 week high on the “Cee” would relieve me of those shares.

I am looking at the sell off in ENY and would probably add if it gets back to a +4.8% distribution rate. I am also targeting MTP and IRR for additions below $14 and $16.60 respectively.

It remains to be seen whether we are seeing the opportunities to buy on the dips as we have seen since March or if the most recent leading losers like Financials, Basic Materials, Tech and REITs will really drag this market down to a serious sell off nearer 870 -950 on the S&P. Best to add to the themes that have exhibited the best relative strength ’til now. Some “STUFF” that we missed out on may continue to provide another opportunity. I am liking JCC if copper dips below $2.75 again. BGR is looking nice for the drillers and midcap integrateds. BCF for the iron ores and met coal. Check a 10 week chart of CLF as a reference! ADM reports next week and if their numbers disappoint then a great opportunity to add ADM-A at below $39 may present. Very strong performance last week in the sell off. SQM with its fertilizer supplemented by the lithium mining has been coming in nicely and the Run up from below $10 in CRESY may be ready to give it up as well. Argentina with some serious debt issues but the company with some serious grain production. Grains should move much higher as/if the US dollar continues to weaken, as foreign dumpers of excess liquidity feeding into their economies like China & Brazil dump US dollars for stuff other than Treasuries.

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