Canadian income trusts, also known as Canadian royalty trusts and Business trusts, are business entities that buy assets generating steady cash flows. Income trusts are attractive to investors because they pay out generous dividends. Usually, trusts are set up by corporations, because of the preferential tax treatment. Unlike corporations, which are subject to double taxation, Canadian trusts are taxed only once- on an individual level.
In most cases, well-established businesses in the oil and gas industries are converted to an income trust. At the transition point, the business is stable, generates a lot of cash, and is in the mature stage of its product life cycle. Therefore, all or most of the available cash is designed to be taken out of the company and distributed to the unitholders. There is no money left to reinvest in operating activities of a new aggressive growth infrastructure.
Being a tax-friendly means of stable income, business trusts attract many American investors, who seem to perceive potential investment opportunities paying as sky-high dividends as 21% in Canada. Investing in Canadian companies would expose the investor to a wider range of companies related to natural resources. This gives the beneficiary extra protection from the expected depreciation of the US dollar because of the United States economic swings, while the Canadian dollar value rises with the soaring economy.
Despite the investment attractiveness of the Canadian income trust, the future unit holder has to be strongly aware of many red flags before putting money in these cash-generating entities. First of all, stay away from trusts that pay unitholders more than their net income. Living in an increasingly volatile and resource-constrained world, this is not a sustainable business practice. The investor needs to do a thorough assessment of the fund’s cash flow by comparing the annual net profit per unit to the total annual dividend distribution per unit.
A blinking red light for the beneficiary could also be the unlimited liability structure of the trusts, which corporations do not have. Businesses can always run into unforeseen problems, and accidents can always happen. Therefore, most business owners would rather take the less advantageous tax situation that comes with owning that business through a corporation, and enjoy the limited liability that the corporation provides in comparison with the trust model.
Under Canadian tax law, the trust’s profit is not taxed if it is annually distributed to the shareholders. Afterward, based on their tax brackets, the beneficiaries may have to pay income taxes on the money received. Unfortunately, Canadian Finance Minister Jim Flaherty has proposed taxation of Canadian income trusts the same as ordinary corporations. If the new government policy goes through, all existing trusts would lose their tax-exempt status by the beginning of 2011. As a result, a big portion of the money that could have been used to pay dividends to the shareholders or reinvest would be taken away by the government. Ultimately, the new tax regime will result in reduced spending power of all current unitholders and the corporations would become a more attractive means of profit generation than the Canadian income trusts are.
Whichever way the Canadian government decides to pitch its hat, Canadian income trusts present an excellent opportunity for investors and should be thoroughly considered for any dividend minded stock portfolio.
TFSA Investors: North America’s Best Growth Investment – The Motley Fool Canada
Exchange Income (TSX:EIF) is a diversified, acquisition-oriented corporation focused on opportunities in aerospace, aviation services, equipment, and manufacturing. The business plan of the company is to invest in profitable, well-established companies with strong cash flows operating in specialized markets.
The company has a price-to-earnings ratio of 13.62, price-to-book ratio of 2.08, dividend yield of 5.53%, and market capitalization of $1.43 billion. Debt is very sparingly used, as evidenced by a debt-to-equity ratio of just 1.77. The company has excellent performance metrics with an operating margin of 8.84% and a return on equity of 3.96%.
The objectives of the company are to provide shareholders with stable and growing dividends and to maximize intrinsic value through on-going active monitoring of the company’s operating subsidiaries. Management continuously monitors and provides support to the subsidiaries that operate autonomously.
Strong aerospace division
The company’s aerospace and aviation division includes a variety of operations within the aerospace and aviation industries. It includes providing scheduled airline, charter service and emergency medical services to communities located in Manitoba, Ontario, and Nunavut. Regional One is focused on supplying regional airline operators around the world with various aftermarket aircraft, engines, and component parts.
Provincial Aerospace provides scheduled airline, charter service and emergency medical services. The division also designs, modifies, maintains and operates custom sensor equipped aircrafts. Provincial Aerospace also provides maritime surveillance and support operations and also offers a full range of pilot flight training services, from private pilot licensing to commercial pilot programs.
Essential manufacturing services
The company’s manufacturing division provides a variety of manufactured goods and related services in several industries and geographic markets throughout North America. Quest Windows is a manufacturer of an advanced unitized window wall system used primarily in high-rise multi-family residential projects in North America. WesTower is focused on the engineering, design, manufacturing, and construction of communication infrastructure and provision of technical services. Ben Machine is a manufacturer of precision parts and components primarily used in the aerospace and defence sector.
LV Control is an electrical and control systems integrator focused on the agricultural material handling segment. WBM manufactures specialized heavy-duty pressure washing and steam systems, commercial water recycling systems, and custom tanks for the transportation of various products, primarily oil, gasoline, and water. Overlanders manufactures precision sheet metal and tubular products.
The company is a diversified, acquisition-oriented corporation focused on opportunities in aerospace, aviation services and equipment, and manufacturing. Exchange Income retains the key management personnel following acquisitions and have them own an equity interest in the company. Management invests in profitable, family-owned businesses with strong cash flows that operate in specialized markets.
In addition to having a strong acquisition strategy, the company has oversight and focuses on the generation of organic growth. Organic growth opportunities come in the form of expanding operations for existing businesses or by investing capital into new equipment and facilities for new customers. The company assesses organic growth opportunities with similar criteria as it does for acquisitions to achieve accretive returns on the capital required.
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What Is The Ownership Structure Like For Boardwalk Real Estate Investment Trust (TSE:BEI.UN)? – Simply Wall St
The big shareholder groups in Boardwalk Real Estate Investment Trust (TSE:BEI.UN) have power over the company. Institutions often own shares in more established companies, while it’s not unusual to see insiders own a fair bit of smaller companies. Companies that used to be publicly owned tend to have lower insider ownership.
Boardwalk Real Estate Investment Trust has a market capitalization of CA$1.9b, so we would expect some institutional investors to have noticed the stock. In the chart below, we can see that institutional investors have bought into the company. Let’s take a closer look to see what the different types of shareholders can tell us about Boardwalk Real Estate Investment Trust.
What Does The Institutional Ownership Tell Us About Boardwalk Real Estate Investment Trust?
Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it’s included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.
We can see that Boardwalk Real Estate Investment Trust does have institutional investors; and they hold a good portion of the company’s stock. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It’s therefore worth looking at Boardwalk Real Estate Investment Trust’s earnings history below. Of course, the future is what really matters.
Boardwalk Real Estate Investment Trust is not owned by hedge funds. The company’s largest shareholder is Boardwalk Properties Company Limited, with ownership of 19%. Cohen & Steers Capital Management, Inc. is the second largest shareholder owning 9.2% of common stock, and CIBC Asset Management Inc. holds about 4.5% of the company stock.
We also observed that the top 10 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.
Researching institutional ownership is a good way to gauge and filter a stock’s expected performance. The same can be achieved by studying analyst sentiments. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.
Insider Ownership Of Boardwalk Real Estate Investment Trust
While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.
I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.
Our most recent data indicates that insiders own less than 1% of Boardwalk Real Estate Investment Trust. We do note, however, it is possible insiders have an indirect interest through a private company or other corporate structure. Keep in mind that it’s a big company, and the insiders own CA$4.4m worth of shares. The absolute value might be more important than the proportional share. It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.
General Public Ownership
With a 35% ownership, the general public have some degree of sway over Boardwalk Real Estate Investment Trust. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.
Private Company Ownership
It seems that Private Companies own 19%, of the Boardwalk Real Estate Investment Trust stock. It’s hard to draw any conclusions from this fact alone, so its worth looking into who owns those private companies. Sometimes insiders or other related parties have an interest in shares in a public company through a separate private company.
While it is well worth considering the different groups that own a company, there are other factors that are even more important. To that end, you should learn about the 3 warning signs we’ve spotted with Boardwalk Real Estate Investment Trust (including 2 which are potentially serious) .
If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
Financial Focus: A primer on different investment accounts – Airdrie Today
There are so many different investment types that it can make investing seem overwhelming. Here’s a high-level overview of what you need to know. Don’t forget, your financial advisor is here to understand your financial goals and guide you on a path to financial success.
Registered Retirement Savings Plan
The Canadian government offers various options to people who want to achieve particular saving goals through registered accounts, such as a Registered Retirement Savings Plan (RRSP). An RRSP is the government’s way of encouraging you to save for retirement by giving a tax deduction on the money that you save in this type of account. When you’re ready to retire, the funds you’ve accumulated can be converted into a steady stream of retirement income.
There are two major benefits to RRSP contributions – paying less income tax and tax-sheltered growth. Your RRSP contributions are deductible from your taxable income, which means you receive either a larger tax refund or a smaller tax bill when you file your taxes. While you will have to pay tax when you eventually withdraw the money from your RRSP at retirement, it will likely be at a lower rate because of your reduced income.
The second benefit is that an RRSP means your savings and interest grow sheltered from tax. You can gain a lot of financial momentum by contributing to your retirement plan early, in your 20s or 30s.
If you want to know more, The Co-operators has put together a simple explanation of what RRSPs are all about at cooperators.ca.
Tax-Free Savings Account
A second registered account you should have is a Tax-Free Savings Account (TFSA). Similar to an RRSP, a TFSA allows you to save money without incurring any taxes on gains you may receive through your investments or interest, up to the $6,000 annual contribution limit. Any Canadian aged 18 or over who has reached the age of majority in their province can open a TFSA.
Withdrawals from your TFSA are tax-free, your contribution room is restored the year after you make a withdrawal and income-tested credits and benefits, such as the GST credit, Employment Insurance and Old Age Security, are not affected by withdrawals from your TFSA.
Furthermore, Canadians aged 18 or older in 2019 who have not yet contributed have $69,500 of contribution room in 2020.
The Canada Revenue Agency will advise you each year of your current TFSA contribution room.
Registered Education Savings Plan
If you have kids or are interested in pursuing post-secondary education, a third registered investment account to consider is a Registered Education Savings Plan (RESP). This type of plan allows you to save for your child’s post-secondary education tax-free, with added funds contributed by the government.
There are two types of RESP – a family plan for any of your children who are under 21 years old, and an individual plan for anyone of any age, including yourself. For the family plan, contributions can be made until the beneficiary is 31 years old.
The main benefit of an RESP is that the account allows you to access government grants. The government will match up to 20 per cent of the funds that you put into your child’s RESP if they are under 17 years old, and there are additional benefit programs based on your income level and province.
Also, contributions to an RESP may qualify you for the Canada Education Savings Grant (CESG) until the year your child turns 17. Through the CESG, the federal government will contribute an additional 20 per cent of your annual RESP contribution to a maximum of $500 a child, per year. In addition to the CESG, you may also qualify for the Canada Learning Bond.
Another benefit of an RESP is tax-deferred investment growth, as contributions made to an RESP can accumulate and grow tax-free over the life of the plan. When you withdraw money to pay education-related expenses, only the additional earnings and grant portions of the plan are taxable. Because the child will likely be reporting a low level of income while attending school, the amount of tax they can expect to pay should be minimal.
Registered Retirement Income Fund
Registered Retirement Income Funds (RRIFs) are simply a continuation of your RRSPs. The only difference is that you must withdraw a minimum legislated amount of money each year.
The value of your retirement income fund and how long it will last depends on the investments you choose, how they perform and how much you withdraw each year.
The latest possible date to convert an RRSP to an RRIF is Dec. 31 of the year you turn 71. At The Co-operators, the minimum opening deposit for an income account is $10,000. You’ll enjoy drawing a steady income while continuing to accumulate interest and investment gains while deferring taxes on the invested portion.
Locked-in retirement income funds can differ by province, plan type, and withdrawal limits. Along with potential estate value in the event of premature death, the flexibility of withdrawal amounts and investment options have made retirement income funds a popular choice.
While RRIFs are by far the most popular, we also offer other options for retirement income funds if you have specific needs that a RRIF can’t fulfill. Ask your financial advisor for more details.
Life Income Fund
A Life Income Fund (LIF) is similar to a RRIF, except it’s specifically designed for locked-in pension funds. LIFs are only available in certain provinces for those with locked-In RRSPs, Locked-in Retirement Accounts (LIRAs), Registered Pension Plans (RPPs) and Locked-in Retirement Income Funds (LRIFs).
A non-registered plan is an account that holds investments, which are taxable to you on an annual basis. If you’re saving for a vacation, a wedding or any other short-term goal, a non-registered plan is an excellent choice. It’s also a great way to increase your retirement savings if you’ve reached your RRSP contribution limit.
Although a non-registered plan does not offer the same tax advantages as an RRSP or TFSA, many benefits make a non-registered plan worth considering, such as fewer restrictions, more flexible age limits, contribution amounts and withdrawals.
An annuity is an alternative for those who want guaranteed payments for their lifetime. An annuity will pay you a set amount per month based on a plan that we design together. We offer various types of annuities to fit your lifestyle.
While there is a lot to consider when it comes to investments and your financial future, The Co-operators’ financial advisors are able to help with every step of the way.
—Submitted by The Co-operators
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