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Alternative Trusts

11/25/2005 12:00 am EST


Neil George

Editor, Profitable Investing

Neil George was an early proponent of Canadian income trusts, earning double and triple digit gains on his positions. Now, he is focused on "alternative trusts" that operate outside the oil gas and oil industry. Here, he looks at his favorite Canadian trusts with "fat dividends".

"TransForce (CA:TIF.UN Toronto) operates trucking and transportation businesses. With revenues rising at more than 40% a year, we’re not buying solely for income—we’re capitalizing on its expansion. It has a dividend yield around 9% and its payout ratio is running at just 66%. That provides a solid cushion, even if the business ebbs in its expansion. With its shares trading at a discount to revenues, TransForce is cheap and a great buy up to USD15.

"Yellow Pages (CA:YLO.UN Toronto), as the name implies, focuses on business listings around the Canadian markets. However, it doesn’t just compile and print those hefty books. It has expanded its online presence to grab increasing business. Its revenues are soaring, so its growth is assured. With a modest payout ratio, the security of our dividend—currently yielding almost 7%—is cushioned. Yellow Pages is a buy up to USD13.

"Moving on to consumer-focused trusts, there’s no better place to begin than with bagged ice. Arctic Glacier (CA:AG.UN Toronto) is a ‘Steady Eddie’ and market leader. You may scoff, but there’s demand for ice year round. Revenues keep advancing at double-digit rates, and its dividends are rock solid. Although its price soared during the past summer, the recent seasonal pull back makes Arctic Glacier a great buy up to USD10.

"Nothing is better than an ice-cold beer. That’s where Big Rock Brewery (CA:BR.UN Toronto) comes in. Its revenue gains are similar to other trusts, with recent gains exceeding 36%. That comes with impressive, increasing margins. All of this is great for Big Rock’s cash flow and dividend, which are paid out at a modest 8% rate, giving us a good safety net. Big Rock is a buy up to USD17.

"Many Canadian residents don’t own the water heaters in their houses; rather, they lease them. This market is quite profitable for Consumers’ Waterheater (CA:CWI.UN Toronto). Sales gains are slower than other businesses, but they’re steady. With its modest payout rate and fat operating margins, it continues to pay dividends at a rate exceeding 7%. Consumers’ Waterheater is a good alternative buy, especially with the cold months underway.

"Last but not least is a company in the thick of an undervalued growth market—multi-family housing. With US and Canadian home prices soaring during the years, the rent-to-buy ratio now favors renters over buyers in more markets. This is giving some renewed pricing power for rental property landlords. Our prime pick is Canadian Apartment Properties (CA:CAR.UN Toronto). Revenues are beginning to soar with recent gains exceeding 60%. With a dividend yield exceeding 7.5%, it’s one of our core real estate investment trust recommendations for income."

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