4 Canadian Income Faves

11/18/2011 11:49 am EST


In what has been a tough couple of months for markets up north, these four plays are either ready to rebound or never stopped moving, writes David West of Income Trust Guide.

In the roughly four and a half months since we’ve fully updated you on the following four income stocks and trusts, the TSX Composite has dropped by 12.44%.

As it was with our common share selections, all four outperfomed the market in that time, though all four did decline in price. On the other hand, on a one-year return basis, two have positive returns (the TSX is down 4.18% from a year ago), and the other two are down less than 0.5% on that basis.

Enbridge Income Fund Holdings Inc. (Toronto: ENF)
This company owns the Saskatchewan System, plus a 50% interest in the Alliance Canada Pipeline, a 50% interest in NRGreen Power, and interests in three wind power projects in Western Canada.

In fiscal 2010, this pipeline and power company reported earnings of just 5 cents per unit, but that was just from December 17 to December 31, with the predecessor organization converting to a stock corporation on December 17.

In the first quarter of 2011, ENF reported earnings of $6.8 million, or 27 cents per common share, representing the first full quarter of activity for the company following the fund’s restructuring. In the second quarter, ENF also made 27 cents per share, bringing the six-month total to 54 cents.

There are no comparable figures for last year, but projecting what they’ve earned this year, they’re on pace for earnings of $1.08 per share this year. At a current price of $18.44, that’s equivalent to a forward P/E of 17.1, which is reasonable.

Since our last update, ENF is down 3.96% in price. All told, Enbridge Income Fund is still up 13.4% from one year ago. In calendar 2009, it generated a total return of 35.5%, and in calendar 2010 it returned 40.18%, so this stock/trust has been good to us for a while now.

That’s admirable for a pipeline: pipelines are supposed to be sure, steady performers. But then again, the work pipelines do is in big demand these days, especially with the production increases planned in the Western Canadian Sedimentary Basin. It’s why pipelines are building so much capacity: there is huge demand for that capacity for years to come.

We also can’t forget this fund’s incredible relative strength. When the stock market went bust in 2008 and the Income Trust Index fell some 36.3%, ENF was one of the top performing trusts that year, with approximately zero price gain or loss.

We see more steady growth from this company for many years. ENF is a buy.

Enerplus Corporation (Toronto: ERF)
This firm owns a balanced and diversified portfolio of producing oil and gas properties across western Canada and the United States.

It is one of Canada’s largest and oldest oil and gas income funds, producing about 95,000 barrels of oil equivalent per day before royalties, 60% of which is from natural gas.

It operates primarily in the Western Canadian Sedimentary Basin, which accounts for about 88% of its production, and in the United States in Montana and North Dakota. Fundamentally, we continue to like Enerplus. We like its very long reserve life index. Enerplus also has a very strong balance sheet: its liquidity is great, and its debt, though a little high, we believe is manageable.

Regarding earnings power, in fiscal 2010, Enerplus earned 72 cents per unit as a trust, compared with earnings of 53 cents the year before. In the first quarter of fiscal 2011 as a corporation, ERF made 17 cents per share, a great improvement over the loss of $1.07 per share it suffered in the same quarter last year as a trust. In the second quarter it made much more than that: $1.50 per share versus 44 cents last year.

But its share price has been choppy: in our last few updates on Enerplus, it had one price gain followed by two losses, then a gain, and then a loss. This update it’s back down again, by 13.72%.

The good news is that, despite the share price volatility, in the long run it has been good rather than bad: it’s now down 0.3% in one year, but it returned 32.28% in 2010.

On balance, Enerplus is a buy.

H&R REIT (Toronto: HR.UN)
In the last update, it had raised its payout to 95 cents from 90 cents per year. This update, the REIT has raised it again, this time to $1.05 per unit.

H&R’s distribution has definitely been on the rise, along with its price. Its payout was raised from 72 cents per unit per year as of five updates ago, to 84 cents per unit four updates ago, to 87 cents three updates back, to 90 cents two updates ago, to 95 cents last update. That’s an enviable record.

H&R has been good to us over the past two years—very good to us—so it’s kind of amazing to think that, just prior to that, this trust had been beaten down to a paltry $8.65 per unit.

If you remember, that was justified, due to the bonehead move when H&R bet the farm on the huge $1.5 billion project to build The Bow in Calgary, the largest office complex west of Toronto, without either a fixed-price construction contract or financing in place, right in the middle of the financial crisis.

We can start to forget that now, as in the past four successive updates H&R managed to increase its unit price, though this update it’s down 8.06%.

We note also that H&R was our top-performing trust overall in 2009, with a total return of 134.50%. In 2010 it returned 44.25%. H&R is a buy.

Blue Ribbon Income Fund (Toronto: RBN.UN)
This trust is down 9.41% in price since the last update, the second consecutive decline, ending two previous consecutive price increases. It’s still a buy for those who need diversification.

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