Thursday, August 16, 2007

gaining some experience in the market

Well, what a 'fun' day today was for someone like me who has been in the market in a big way for less than 2 years. The TSX was down by over 500 points at one point today! I really am enjoying this as I have no plans for my capital for at least 10 - 15 years. Here is a great article from the Globe that sums it up well.

Several buying opportunities keep popping up and some have been too hard to resist. As mentioned in my last post I initiated a position in the Bank of Nova Scotia (BNS) earlier this week.

My second purchase of the week was today, when I felt it necessary to double my stake in Yellow Pages Income fund (YLO.UN) as it dropped to the $12.50 range. In my opinion this is an opportunity to pick up some of the safest, high yield in the Canadian market today. The units are trading at points not seen since just after the Halloween Massacre last November, and now yielding 8.7%. This represents a drop of almost 20% off of it's 52 week high. Heck, stocks with much more potential volatility in their earnings (and thus returns) like Petro Canada, EnCana, and Caterpillar are off by less than this from their highs because of this downturn.

It is my belief that as panic has been setting in for some investors, they tend to liquidate trusts that are more liquid (higher daily trading volumes) more readily, as oppose to trusts that trade with lighter volume. This ensures they get a better price for their units. I am willing to buy 8.7% yield off of a hasty panicked seller, as I believe Yellow Pages is a superb business with a stable business model, stable organic growth, and a fabulous brand name. As long as they do not cut their distribution, which has been hailed as extremely safe, I am fine with a little unit price depreciation in the short term. This is one of those stocks that plays the 'baby' role as it is thrown out with the bathwater on days and weeks like these.

What are you buying? What is your opinion of this credit crunch?

10 comments:

Anonymous said...

Moneygardener:
Investment Reporter showed Yellow pages having a payout of 121.2%. Does that make you nervous at all?
Great choice on BNS, I'm hoping to pick up BMO in this slide.

Rick

Middle Class Millionaire said...

Haven't bought yet but I'm looking at IPL.UN, BNS and BMO.

My thoughts are that in five years almost everyone will have forgotten about it...As investors we tend to have fairly short memories...

moneygardener said...

Anon,

I am not nervous at all as YLO made a large acqusition (trader media) lately that may have affected the numbers ued there.

Here is how I have determined the pay out ratio

Cash In = 601
Cap Ex = 60
Dist. Paid = 517

Pay out ratio = 86%

Cash left after pay out and cap ex = 24

Uncle Pickles said...

Bought some more BNS, BAC and YLO.un.
BTW - the payout ratio is improving each quarter as YPG is not increasing distributions until after 2011. So basically it's a 5.5% dividend (non discounted) with a growth rate of nominal GDP in 2011. A decent return IMO. I have an order in for more BMO and SLF at lower prices.

moneygardener said...

pickles,

Are you sure YPG is not increasing distributions until after 2011?

Where did you read this?

uno1taxpayer said...

On Friday, I bought some NA for $53.46 and then I said oops after reading they have alot of ABCP's in their mutual funds. I also put in a bid of $46.85 for BNS and got left behind in the dust.
If I can get PIF.un for $16.26 or less, I am going to triple my holdings in it for its steady little income stream. Pembina has increased their distribution for the second time this year to $1.44 presenting a 20% combined increase. Capital expenditures during the past two years have focused on adding conventional pipeline capacity, oil sands pipelines along with processing and storage facilities adjoining their pipelines, all of which are now contributing positively to earnings. Three new pipeline connections became operational in Q2/07 and they expect an additional four new connections by Q4/07. Their pipelines and related infrastructure are well located in both the oil sands and conventional production regions in western Canada.

Uncle Pickles said...

Moneygardener,

YPG disclosed that cash distributions will not be raised until after 2011 (2006 annual or 06 4th quarter) as a means to perserve the current yield while setting aside the extra FCF for the upcoming taxes on distributions. The way I look at it is the distributon is taxed as interest income and with my tax rate my after tax yield is roughly the same the proposed 2011 dividend. For 2011 forward, I expect the dividend to grow 4-5% yearly (nominal GDP).

Uncle Pickles said...

One last thing, as much as I like pipelines. I own TRP,ENB and the hybrid ALA.un. I not committing new cash towards income trust pipelines as their growth is dependant on their ability to raise debt or capital for financing since most pay out 90% of their cash flow. These trusts are not bad investments and will offer good yields until 2011, but then I get uncomfortable. I am hoping that Altagas converts back to the corporation that I initially held years ago.

uno1taxpayer said...

Don’t get caught by can’t see the forest (the good income trusts) for the trees (their pending 2011 taxation). The following comment in the PIF.un Q2/07 earnings report indicates (to a retail investor such as myself) that PIF.UN will be able to shelter income from tax for several years past 2011.
“The recent enactment of Bill C-52 relating to trust tax has no additional impact on the Future income tax liability. The Fund has no timing differences other than those of its subsidiaries that are fully reflected in the Future income tax liability and, as the tax basis of the Fund's investment in its subsidiaries far exceeds the cost basis it is not appropriate to record the benefit of a future tax asset of this nature.”
I have been easily fooled before so; if I have mis-interpreted the above statement; please forgive and feel free to correct me.

moneygardener said...

pickles,

I do not see it written anywhere, that YPG has stated explicitly that they will not raise dists. until 2011. I can only see where they state that they will build up reserves to account for the tax later.

Where exactly did you read this?