CHEMTRADE LOGISTICS INCOME FUND (Toronto symbol CHE.UN;
www.chemtradelogistics.com) is one of North America’s largest providers of removal services for resource firms, such as oil refineries and base-metal processors. These companies create sulphur, acid and other by-products as part of their activities. Chemtrade converts these substances into useful chemicals, like sulphuric acid.
In June 2011, Chemtrade bought Marsulex Inc. for $419.5 million. Marsulex provides a range of environmental services, including improving air quality and treating and handling industrial waste.
In the three months ended September 30, 2012, Chemtrade’s revenue fell 10.3%, to $240.9 million from $268.5 million a year earlier. Cash flow per unit fell 25.0%, to $0.72 from $0.96. However, the decline was mostly due to a one-time accounting charge. The
2011 quarter was also particularly strong.
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Income funds: Tax structure permits Chemtrade to remain income trust
Chemtrade will continue as an income trust. That’s because it believes that it is structured in such a way that its earnings will be subject to a Canadian tax rate of no more than 10%. That will help it maintain its distribution, which currently gives it a high 7.8% yield. It pays out just 60% of its cash flow to unitholders.
The trust needs sustained economic growth to keep demand for its services high. As well, the company aims to lower its risk by signing long-term contracts with customers.
In the latest edition of Stock Pickers Digest, we examine the risk represented by the trust’s exposure to cyclical commodity and chemical prices; in particular, we consider the outlook for the prices of sulphur and sulphuric acid. We also consider the effect of environmental regulations on Chemtrade’s services. We conclude with our clear buy-hold-sell advice.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
Did you invest heavily in income trusts when they were plentiful? Did you stick with any of them after Ottawa changed the rules? Let us know what you think.
Comments
c.carnon
yesdid have a lot of income trusts as they were paying out approx 10% income on average. still have some that remained trusts(real estate) ans a couple that became corporations as they were good companies
not sure if your chemical clean up company is worth investing in or not but someone has to clean up the s..t we make producing stuff .what about waste management?
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yesdid have a lot of income trusts as they were paying out approx 10% income on average. still have some that remained trusts(real estate) ans a couple that became corporations as they were good companies
not sure if your chemical clean up company is worth investing in or not but someone has to clean up the s..t we make producing stuff .what about waste management?
Thanks for your question.
We’ll update our advice on Chemtrade — and the issue you raise — in the next issue of Stock Pickers Digest.