Friday, May 18, 2007

Inter Pipeline Fund purchase

I made by first foray into income trusts yesterday by buying some Inter Pipeline Fund(IPL.UN).

The purchase is out of the norm for me, as I usually am a buyer of dividend growing stocks.

The Reason
Our family employment income will be decreasing substantially from Jan., 2008 - Jan., 2009. I'm sure it's quite obvious why this will occur.

The Strategy
Develop a section of my portfolio that will be used for capital stability, capital availability, and high income. The section should be complete by late 2007. Due to the reason for investment, the trusts will not be entered into DRIPS or invested for growth. Stable income is to be the goal. Ideally the money will not be required for removal; the income stream will be valuable throughout the period and beyond.

I decided to start with IPL.UN for several reasons which are not limited to:

- stable industry and business model
- higher yield (8.6%)
- good earnings record
- pay out ratio practices and trends
- lower debt levels
- market share improvement and outlook

7 comments:

Il grande chef said...

Very interesting blog!
Kisses

Mike said...

Congrats!

Mr. Cheap said...

If income trusts are good for "capital stability, capital availability, and high income" what's the downside? Is this why they were so popular that the government put restrictions on them?

uno1taxpayer said...

First and foremost, congratulations on expecting your first child then second, congrats on the purchase of your first income trust for “income”. May I suggest you look at Limited Partnerships as well. I use Income Trusts and Limited Partnerships for “income” and “business income”. In 2006 I worked half-time for half-salary plus all the full-time benefits. My half-salary was just shy of maximum CPP insurable earnings. To maximize the CPP contribution, I was able to use the “business income” portion from the limited partnerships. Dividend income rules and business income tops up your CPP.

moneygardener (AKA investor99) said...

Thanks for all the comments.

Mr. Cheap,

To say that all income trusts are good for capital stability, capital availability, and high income is probably a little optimistic. These investments are like anything else in that they have their inherent risks.

I have selected this particular trust because I believe it to be a likely candidate to provide those three benefits for the foreseeable future. I am willing to take on much greater 'capital risk' to obtain higher income, than say, what a savings account might offer. There is nothing saying that IPL.UN won't cut it's distributions and/or lose some of it's value. I just think that this is highly unlikely given the reasons I listed on the post.

Anonymous said...

But what about the fact that the dividends per share has been more than the earnings per share continuously?

moneygardener said...

Anon,

This phenomenon is true with most trusts. I am not an expert on the accouting side. I look more at the cash flow on trust to ensure that they can afford to pay me while sustaining their business and Inter passes the test.

I would love to know why many trusts exhibit a higher Div/share than EPS. I believe in the case of Inter it has to due the fact that the assets will eventually be worthless so they are able to depreciate them.