Wednesday, November 7, 2007

Yellow Pages hikes

Always great to receive yet another raise....

My portfolio income from investments made another leap forward today as Yellow Pages Income Fund (YLO.UN) reported a 3.7% increase in distributions from $1.09 per unit to $1.13 per unit. This is very good news for my portfolio income, considering YLO.UN makes up 16% of the total assets held.

Here are some highlights of their earnings release:

- Adjusted earnings for the company grew by 15%. The company is now earning $180 M annualized from their online activity.

- Distributable cash per unit actually increased by 9.7%, however the company only raised distributions by 3.7%. The reason for this is because Yellow Pages in managing this company for the long term. They are actually building up a buffer, and progressively reducing their pay out ratio, which will enable them to not have to cut distributions after 2011 when the new tax for income trusts sets in. At that time Yellow Pages will transition from an income trust to a regular corporation.

- Organic growth in their directories business remains strong at 6% earnings growth.

One aspect of this company that I really like is their management. One can tell from their earnings releases and conference calls that they are exceptional communicators. They also integrate acquisitions very well.

Their margins are phenomenal at almost 60% for directories. They hinted that 2008 looks very good as they build momentum from their recent acquisitions such as the purchase of Trader Media (Auto Trader etc.). Yellow Pages (YLO.UN) is now yielding about 7.8%, and trading at $14.50 / unit.


Doug Mehus said...

I love Yellow Pages Income Fund. I purchased 125 shares yesterday at $13.58, just to start out and initiate a position. It's perhaps a little on the high side but given they have traded as high as $16 in the past two years and the fact it's well-managed, with stable and growing distributions, plus the fact I'm here for the long-term, I'm comfortable with that price.

My only gripe would be they appear to have no DRIP. It'll be rather annoying to receive small distribution cheques every month - hopefully they'll at least offer direct deposit.

I have several semi-related questions for you:

1. Does your online broker (in my case, TradeFreedom Securities) automatically send information on your share purchase or sale to the company's transfer agent? How long does it usually take for a share certificate and/or an account to be created with the transfer agent when you initiate a position in a company?

2. Some income trusts that have negative earning/share (or, more accurately, a loss/share) still have considerable distributions. For instance, Inter Pipeline Fund, which you hold, shows them as having a loss/share when looking them up on Are they not profitable? If they're not profitable, how can they have money to distribute to unitholders? Several REITs and other trusts are like this as well.

3. On the subject of REITs, what do you think of the large cap REITs? Do you have any particular favourites you care to share? I am watching RioCan, Calloway, and Primaris (one of those ones with a loss/share). I'm also watching Brookfield Properties - it's good stable profit growth and a reasonable annual dividend of about 3%. They've got a reasonably uncomplicated corporate structure.

MG said...

Hi Doug,

You should set a synthetic DRIP up with your broker. It'll buy only whole shares, but it's better than nothing.

1.You need to have your shares transfered from 'street name' to actually hold them with the company via the transfer agent. Call your broker to facilitate. This takes about 2 weeks and costs around $32.

2.Negative earnings/per share are a function of acquisitions, depreciation, other costs associated with owning infrastructure I believe. I am not an expert on the accounting but I've had it explained to me before and I've seen IPL's actual pay out ratio from operations and I am pleased with it.

3. I do not follow REITS for the simple reason that I am already overweighted in real estate due to owning my own home.