Put Some Dividends in Your Stocking
12/08/2006 12:00 am EST
All-around successful investment pro Gordon Pape finds gold in the recent uproar over income funds, recommending a fund that is taking advantage of the current miasma in the sector, and also throws in an energy pick to sweeten the pot...
"I originally recommended Yellow Pages Income Fund (YLO.UN TSX, YLWPF OTC) on July 28/03(IWB #2327). One of the most important things an income trust can do to mitigate the impact of Jim Flaherty's new tax is to continue to raise distributions between now and 2011. Yellow Pages was the first to do so, announcing a 6% hike in payments, effective with the January 15, 2007 distribution. On an annualized basis, the trust will pay $1.09 a year, up from $1.03 currently.
"CEO Marc Tellier described the move as "a clear indication of the confidence we have in our future." Christian Paupe, the trust's executive vice-president and chief financial officer, added: "We are confident that our ability to generate free cash flow from operations in excess of cash distributions will provide the necessary flexibility to fund cash income taxes following the four year transition period." This was clearly good news for Yellow Pages unit holders. The share price rose modestly, recently closing at $12.90, resulting in an 8.4% projected yield for 2007. Buy at a price of $13 or less.
"Enbridge (ENB TSX NYSE) is a first-class company with a long history of dividend increases and it would make a worthy substitution for any income trust that you decide to sell. Enbridge operates the world's largest oil and liquids pipeline system. It also owns and operates our largest gas distribution company, servicing 1.8 million customers. It has an immensely strong balance sheet with assets of almost $18 billion and a $12 billion market capitalization. Profit totaled $444 million during the first nine months of this year, equal to $1.30 a share, a 16% improvement over the same period in 2005.
"The company's status as a quasi-utility is a great advantage to investors seeking income stability. Enbridge benefits from a substantial, almost assured, cash flow from its gas distribution services and uses this to fund pipeline expansion as well as dividend increases. The company aims to distribute 60%-70% of its rising profit as dividends to shareholders. When I originally recommended this stock back in 1999, Enbridge shares were yielding 3.8%. Anyone who bought the stock back then is now enjoying a yield of 7.2%, thanks to regular dividend increases over the years. And I expect the pattern will continue for years to come. So if you plan to rebuild your portfolio, start here. You won't do much better."
The key risk-on and off drivers today are the same – U.S. politics, global growth, other centr...