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Canadian Income Trusts

Canadian income trusts, also called "business trusts," are similar to energy royalty trusts in that they avoid corporate income taxes if they pay out most of their profits to shareholders. However, unlike energy trusts, which own energy reserves; income trusts operate regular businesses such as retail stores, restaurants, oil drilling services and pulp paper factories.

Growth Stocks
Some are mature businesses that generate cash, but aren’t growing much. Others, however, have relatively strong dividend growth prospects. This is an advantage over royalty trusts, which depend mostly on rising oil prices for dividend growth.

Income trusts are relatively new kids on the block. Of the more than 200 existing trusts, most were formed since 2001. Some were established businesses that converted to the trust structure, while others only recently went public.

Most income trusts pay distributions (dividends) equating to 6% to 8% annual yields, but some go as high as 10% or 12%. 

Proposed Tax Law Changes Could Kill Trusts
Most Canadian trust share prices took a major hit in November 2006 after the Canadian government proposed taking away their special tax status (they currently pay no federal taxes) and taxing them the same as regular corporations starting in 2011.

While, in the U.S., such a proposal would have no chance of becoming law without major changes, the only significant opposition in Canada is coming from the trusts, themselves. It appears likely that the tax changes will become law as originally proposed, although many of the details are yet to be worked out.

However, most income trusts do not suffer from the depleting assets issue that is plaguing energy trusts. While their growth rates might slow, income trusts with solid balance sheets can continue to operate indefinitely without needing to raise more cash.

Research Info
The Toronto Globe & Mail’s investor site (globeinvestor.com) offers a short profile of each trust plus financial statement data going back three years (company snapshot), news headlines going back one-year, and detailed analyst earnings forecasts and buy/sell ratings (estimate snapshot).

The biggest danger of investing in income trusts is picking a trust that cuts its distribution while you own it. Should that happen, you get hurt twice. Besides for receiving lower than expected payouts, the share (unit) price is likely to drop. You can reduce your chances of experiencing that calamity by avoiding trusts where analysts are forecasting negative earnings growth for the current or next fiscal year.

The buy/sell ratings are in numeric format from 1 to 5, where 1 equates to ‘strong buy, 2 is ‘buy,’ 3 is ‘hold,’ 4 is ‘sell’ and 5 is ‘strong sell.’ In my experience, it’s best to avoid trusts that analysts are advising selling (ratings higher than 3).

For more information about trusts, download a report titled, “Income Trust Primer,” in the Investment Research section of “The Ritcey Team at ScotiaMcLeod” (www.ritceyteam.com).

Buying & Selling Trusts
Most income trusts trade only on the Toronto Stock Exchange (not on U.S. exchanges). You can trade them on the Toronto exchange using most major U.S. brokers, but you have to place your order by phone, which costs more than online.

You can trade Toronto-listed stocks online using Interactive Brokers (www.interactivebrokers.com), which charges low ($0.01 per share) trading commissions. But Interactive has a minimum $10/month charge, which equates to $120/year. That could be prohibitive, depending on your trading activity. Penn Trade (www.penntrade.com), an Idaho-based broker, also accepts online trades for Toronto-listed stocks for a $29.95 commission per trade.

Many income trusts have ticker symbols for the U.S. Pink Sheets exchange. You can look up the ticker symbols on Yahoo (finance.yahoo.com) or on your stockbroker’s site (all are five letters ending with F). You can usually trade using the Pink Sheets’ ticker for the same commissions as U.S. listed stocks. However, you should set a maximum (limit) price, otherwise you could end up overpaying.

Tax Considerations
Trust distributions may be designated as return of capital (not taxable until sold) or as dividend income. The trust determines the split between each category after the end of the calendar year. Otherwise, Canadian income trusts have similar tax issues as royalty trusts, including their dividends being subject to 15% withholding for taxes.

Income trusts are a controversial topic. Some experts think the category has already seen its best days. So, proceed cautiously.

Here's a partial list of Canadian Income Trusts.

A&W Revenue Royalties Income Fund AW.UN A&W Restaurants
ACS Media Income Fund AYP.UN Advertising Directories
Aeroplan Income Fund AER.UN Marketing Services
Ag Growth Income Fund AFN.UN Agricultural Machinery
Algonquin Power Income Fund APF.UN Power Generating Facilities
AltaGas Income Trust ALA.UN Wind Operating Power Generating Facilities
Amtelecom Income Fund AMT.UN Telephone Services
Arctic Glacier Income Fund AG.UN Packaged Ice Distributor
Armtec Infrastructure Income Fund ARF.UN Drainage Pipes
Atlas Cold Storage Trust FZR.UN Frozen Food Warehousing & Distribution
ATS Andlauer Income Fund ATS.UN Trucking, Courier & Air Freight Services
Avenir Diversified Income Trust AVF.UN Oil & Gas Producer
Badger Income Fund BAD.UN Oil & Utility Excavating Services
Bell Aliant Regional Communications In. BA.UN Telephone Services
Bell Nordiq Income Fund BNQ.UN Telephone Services
BFI Canada Income Fund BFC.UN Waste Management Services in U.S & Canada
Bird Construction Income Fund BDT.UN Industrial & Commercial General Contractor
Bonnett's Energy Services Trust BT.UN Oil Drilling Services
Boralex Power Income Fund BPT.UN Electric Utility Serving Canada & U.S.
Boston Pizza Royalties Income Fund BPF.UN Full-Service & Fast Food Restaurants
Brick Group (The) BRK.UN Retail Furniture Stores
Builders Energy Services Trust BET.UN Oil Drilling Services
Calpine Power Income Fund CF.UN Electric Utility
Canada Cartage Diversified Income Fund TRK.UN Trucking Services
Canfor Pulp Income Fund CFX.UN Paper Products
Canwest Mediaworks Income Fund CWM.UN Newspaper Publisher
Cathedral Energy Services Income Trust CET.UN Oil Well Drilling Services
CCS Income Trust CCR.UN Waste Management & Oil Field Services
Chemtrade Logistics Income Fund CHE.UN Chemical Products
CI Financial Income Fund CIX.UN Investment Manager
Cineplex Galaxy Income Fund CGX.UN Movie Theater Operator
Clean Power Income Fund CLE.UN Environ. Friendly Electric  Generator
Clearwater Seafoods Income Fund CLR.UN Shellfish Harvester
CML Healthcare Income Fund CLC.UN Medical Laboratory & Imaging Services
Colabor Income Fund CLB.UN Retail Grocery Distributor
Connors Bros. Income Fund CBF.UN Produces Canned Seafood Products
Consumers' Waterheater Income Fund CWI.UN Residential Water Heater Rental
Contrans Income Fund CSS.UN Trucking Services
Custom Direct Income Fund CDI.UN Bank Check Printer
Data Group Income fund DGI.UN Business Form Printer
Davis + Henderson Income Fund DHF.UN Bank Check Printer
DirectCash Income Fund DCI.UN ATM Transaction Processing
Duke Energy Income Fund DET.UN Natural Gas Processing & Pipelines
E.D. Smith Income Fund JAM.UN Private Label Food Products
Enbridge Income Fund ENF.UN Oil & Natural Gas Pipelines
Energy Savings Income Fund SIF.UN Natural Gas & Electric Utility
Eveready Income Fund EIS.UN Environmental Services
Foremost Income Fund FMO.UN Oil & Natural Gas Drilling Equipment
FP Newspapers Income Fund FP.UN Newspaper Publisher
Futuremed Healthcare Income Fund FMD.UN Nursing Home Supplies & Equipment
Gamehost Income Fund GH.U Casinos, Hotels & Restaurants
Gateway Casinos Income Fund GCI.UN Casinos
Gienow Windows & Doors Income Fund GIF.UN Window & Door Products
GMP Capital Trust GMP.UN Investment Banking Services
Golf Town Income Fund GLF.UN Retail Golf Specialty Stores
Granby Industries Income Fund GBY.UN Heating Oil Storage Tanks
Great Lakes Carbon Income Fund GLC.UN Chemicals
Halterm Income Fund HAL.UN Ship Container Terminal Operator
High Arctic Energy Services Trust HWO.UN Oilfield Drilling Services
IAT Air Cargo Facilities Income Fund ACF.UN Airport Building Owner
Innergex Power Income Fund IEF.UN Electric Utility
Jazz Air Income Fund JAZ.UN Charter Air Transportation
K-BRO Linen Income Fund KBL.UN Laundry & Linen Services
KCP Income Fund KCP.UN Household Products
Keyera Facilities Income Fund KEY.UN Natural Gas Liquids
Lakeport Brewing Income Fund TFR.UN Private Label Non-Alcoholic Beer
Liquor Stores Income Fund LIQ.UN Retail Liquor Stores
Livingston International Income LIV.UN Customs Broker and Related Services
Macquarie Power & Infrastructure MPT.UN Electric Power Generating Plants
Medisys Health Group Income Fund MHG.UN Healthcare Services
Menu Foods Income Fund MEW.UN Private Label Pet Foods
Morneau Sobeco Income Fund MSI.UN Pension and Benefit Plans
Movie Distribution Income Fund FLM.UN Movie Distributor
Mullen Group Income Fund MTL.UN Transportation Services (oil and gas)
Newalta Income Fund NAL.UN Industrial Waste Management
Newport Partners Income Funds NPF.UN Asset Management
Noranda Income Fund NIF.UN Zinc Processing
North West Company NWF.UN Food Products and Apparel Retailer
Northland Power Income Fund NPI.UN Electric Power Generating Plants
Oceanex Income Fund OAX.UN Freight Services
Osprey Media Income Fund OSP.UN Newspaper & Magazine Publisher
Parkland Income Fund PKI.UN Fuel & Convenience Stores
Peak Energy Services Trust PES.UN Oilfield Equipment
Pembina Pipeline Income Fund PIF.UN Petroleum Pipeline Operator
Phoenix Technology Income Fund PHX.UN Oil & Natural Gas Drilling Services
Pizza Pizza Royalty Income Fund PZA.UN Quick Service Pizza Restaurants
Precision Drilling Trust (US:PDS) PD.UN Oilfield Services
Premium Brands Income Fund PBI.UN Specialty Food Products
Prime Restaurants Royalty Income EAT.UN Casual Dining Restaurants & Pubs
Priszm Canadian Income Fund QSR.UN Fast Food Restaurants
PRT Forest Regeneration Income Fund PRT.UN Forest Seedling Grower/Nursery Operator
Royal Utilities Income Fund RU.UN Coal Mines
Russel Metals RUS Steel Distribution
SCI Income Trust SMN.UN Mattress Mfg.
Second Cup Royalty Income SCU.UN Specialty Coffee Shops
SIR Royalty Income Fund SRV.UN Restaurants
Sleep Country Canada Income Fund Z.UN Retail Mattress Stores
Sterling Shoes Income Fund SSI.UN Retail Shoe Stores
Stoneham Drilling Trust SDG.UN Oil & Natural Gas Drilling Services
Strongco Income Fund SQP.UN Construction Equipment Rentals
Student Transportation of America STB.UN School Bus Services in U.S.
Superior Plus Income Fund SPF.UN Chemical & Construction Products
Swiss Water Decaffeinated Coffee Inc. SWS.UN Coffee Decaffeinating
Taylor NGL Limited Partnership TAY.UN Natural Gas Processing & Pipelines
Total Energy Services Trust TOT.UN Oil & Natural Gas Drilling Services
TransForce Income Fund TIF.UN Trucking Services
Tree Island Wire Income Fund TIL.UN Wire & Wire Products
Trimac Income Fund TMA.UN Trucking Services
Trinidad Energy Services Income Fund TDG.UN Oil & Natural Gas Drilling Services
UE Waterheater Income Fund UWH.UN Residential Water Heater Rental
Vicwest Income Fund VIC.UN Metal Building Products
VOXCOM Income Fund VOX.UN Security Alarm Services
Wajax Income Fund WJX.UN Industrial Equipment Sales
Westshore Terminals Income Fund WTE.UN Coal Export Terminals
XS Cargo Income Fund XSC.UN Discount Retail Stores
Yellow Pages Income Fund YLO.UN Telephone & Product Directory Publisher

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