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.
Chemtrade’s Marsulex subsidiary provides a range of environmental services, including improving air quality and treating and handling industrial waste.
In the three months ended March 31, 2013, Chemtrade’s revenue fell 7.8%, to $210.0 million from $227.9 million a year earlier. The decline mostly reflects lower prices for sulphuric acid on international markets. However, cash flow per unit rose 7.6%, to $0.71 from $0.66.
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Income funds: Trust structure allows Chemtrade to keep distributions high
Chemtrade will continue as an income trust. That’s because it is structured in such a way that its earnings are subject to a Canadian tax rate of no more than 10%. That helps it keep its distributions high. Chemtrade currently has a 6.9% yield and pays out just 60% of its cash flow to unitholders.
The trust needs sustained economic growth to keep demand for its services high. However, the company lowers its risk by signing long-term contracts with its customers.
In the latest edition of Stock Pickers Digest, we look at the risk represented by the trust’s exposure to cyclical commodity and chemical prices. We also consider the effect of environmental regulations on Chemtrade’s services. We conclude with our clear buy-hold-sell advice on this stock.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
Do you believe the government made the right move when it taxed most income trusts out of existence? If the policy were reversed and the tax lifted, do you think many companies would choose to become trusts? Would you invest in them? Let us know what you think.
Comments
Anthony
My understanding is the Govt moved to change the laws on income trusts because they believed rightly or wrongly that the big 5 chartered banks were considering converting to an income trust format. Thus depriving the Govt of significant corporate taxation. if this came about, little to stop other large companies I.e. pipelines for doing the same. we will never know the thinking behind that decision.
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X No, I don’t want to make steady income from dividends.
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My understanding is the Govt moved to change the laws on income trusts because they believed rightly or wrongly that the big 5 chartered banks were considering converting to an income trust format. Thus depriving the Govt of significant corporate taxation. if this came about, little to stop other large companies I.e. pipelines for doing the same. we will never know the thinking behind that decision.