Metals and Much More

By Roger S. Conrad

Thursday, July 02, 2009

Energy is Canada’s chief cash crop. But it’s far from the only natural resource the country has in abundance. At last count, Canada produced more than 60 different metals and minerals and operated more than 180 producing facilities, from peat bogs to quarries and steel mills. more

High Yield Of The Month

High Yield of the Month

By Roger S. Conrad

Thursday, July 02, 2009

Generous dividends backed by strong and growing underlying business: That’s what I look for in every Canadian Edge Conservative Holding. This month’s High Yield of the Month duo have both strengths in plenty. more

Portfolio

Stick with Value

By Roger S. Conrad

Thursday, July 02, 2009

In the December 2008, I forecast a reversal of the “negative factors” that made 2008 so painful for Canadian markets. That’s exactly what we’ve seen since early March of this year. Despite a slight pullback over the last month, the Canadian Edge Portfolio is up more than 20 percent for the year, with many holdings doubling and more off the March 9 lows. more

Tips On Trusts

Tips on Trusts

By Roger S. Conrad and David Dittman

Thursday, July 02, 2009

Three Canadian trusts cut distributions last month. Unlike last month’s cutters, however, their moves did have a hugely negative impact on share prices, as they indicated much greater business weakness than investors had expected. more

Canadian Currents

Canada's New Government

By David Dittman

Thursday, July 02, 2009

From a long-term perspective, Harper is good for Canadian business and good for investors in Canada. He's the top guy right now in a country that maintained active oversight of its financial system, didn’t succumb to the short-term allure of cheap and easy credit for homebuyers, and is cutting taxes. more

A Thousand Words

Under the Cap

In Brief

No-Cut Conversions

By Roger S. Conrad

Thursday, July 02, 2009

Algonquin Power Income Fund (TSX: APF-U, OTC: AGQNF) and Crescent Point Energy Trust (TSX: CPG-U, OTC: CPGCF) have joined AG Growth International (TSX: AFN, OTC: AGGZF), Bonterra Oil & Gas (TSX: BNE, OTC: BNEFF) and Superior Plus Corp (TSX: SPB, OTC: SUUIF) in the growing group of trusts announcing corporate conversions without simultaneously reducing distributions.

Algonquin slashed its distribution nearly 70 percent last October. At the time, my feeling was this was basically preparing for an early conversion. Management’s official statement was it was saving cash for growth.

As it turned out, both assertions proved true. Management has spent more on growth, most recently via a USD116 million 50-50 joint venture with Emera (TSX: EMA, OTC: EMRAF) to purchase the 47,000 customer California operations of NV Energy (NYSE: NVE). The dividend, meanwhile, was lowered enough to make it easily sustainable under a corporate structure.

Even counting Algonquin, “no-cut” conversions have been dramatically outnumbered by those involving reductions. Critically, however, market reaction to no-cut conversions has been highly favorable, particularly compared to conversions with dividend cuts.

I detect two clear reasons for this. One is investors like dividends. And while trusts that have cut during their conversions have eventually attracted more growth-focused investors, the cuts have initially triggered a disruptive mass exodus from their shares. That’s at least temporarily shut down their ability to raise equity capital at non-dilutive rates.

Advantage Energy Income Fund (TSX: AVN-U, NYSE: AAV), for example, eliminated its distribution in March as part of an early conversion to a corporation. And its CAD102 million equity sale in late June came off at just 60 percent of book value and less than half net asset value. The fact that it was forced to accept such a paltry sum is a real warning of weakness--i.e., that it truly needs cash--despite some recent recovery in the share price.