All About Financial Matters

Archive for February, 2008

On October 31, 2006 — now dubbed the “Halloween Massacre” — Canadian Finance Minister Jim Flaherty shocked the income investing world by announcing that beginning 2011 all Canadian income trusts would be taxed.

The law that enables Canadian companies to switch their business structure from a corporation to a trust that’s free of taxes so long as their net profits are returned to the trust unitholders, goes back to 1985, but was little known outside the energy and natural resources industries.

In the 1990s, most Canadian investors were just as caught up in the high tech bubble as Americans, and so Bay Street paid little attention to companies pumping oil and using an unusual business structure to avoid taxes.

That changed with the Tech Wreck of March-April 2000. Since then, Canadians and eventually American and other investors seeking high yields for their investment funds had been pouring money into Canadian royalty trusts.

The business trust structure works well for companies in industries with a high cash flow. This works especially well for energy and natural resources companies now that oil prices are making record highs almost daily, and other commodities are also skyrocketing in price around the world, thanks to increased demand in China and India.

And this dovetails nicely with the Canadian economy, for that country is rich in natural resources. Their oil sands alone probably have more oil than Saudi Arabia.

So until October 31, 2006, knowledgeable income investors were buying up CanRoys — and getting a terrific return on their investment. This included monthly dividends checks with yields of up to 17%. And many of the trusts rose in market price as their businesses prospered and demand for trust among yield-hungry investors kept rising.

Following the October 31, 2006 that the Conservative Party of Canada intended to break its implicit campaign promises not to raise taxes, overall unit prices of Canadian income trusts fell 10 to 20%, destroying about $C 35 billion of market capitalization.

Yet there are good reasons for continuing to invest in Canadian royalty trusts:

1. The oil and natural gas companies own highly strategic energy assets in a politically stable part of the world.

2. The tax proposal is, so far, only a proposal. It may never be passed by Canadian Parliament. About 5% of Canadian voters own these trusts. They want to continue to receive their large monthly dividend checks.

3. Current royalty trusts continue to operate under the old rules, and pay very high dividends. They’re now relatively cheap to buy.

4. Too many companies with businesses unsuitable for the business trust structure were converting over to it. It requires a high cash flow and the ability to survive as a business without keeping lots of cash on hand. Many businesses need to retain their cash to reinvest in capital equipment.

5. For investors who live outside Canada, receiving income in Canadian dollars is a good way to hedge the risk that their currency’s buying power is falling (as the US dollar is now doing.)

Everyone must make their own choices regarding their own money and investments, but right now seems a good time to put a portion of your investment funds into some of the better oil, natural gas, utility and infrastructure Canadian royalty trusts.

Energy prices will have ups and downs but anybody who fills their automobile with gasoline or heats their home knows the long term trend is up. Since much of the energy supplies outside of North America are in politically unstable parts of the world (the Mideast, Venezuela, and so on), investing in Canadian energy sources and infrastructure, and receiving high-yield monthly dividend checks to boot, seems almost a no-brainer.

Of course, you should remain diversified, so don’t put all your retirement money into these funds.

c. 2007 Richard Stooker

Everything you know about investing is wrong.

Learn the secrets of investors who make money in both bull and bear markets . . . good times and bad!
Get your free eCourse: incomeinvesthome.com/ 7 Reasons to Invest for Income

Learn more about

A debt consolidation loan is taken to help someone facing financial difficulty to repay existing loans. If a debtor has too many loans and outstanding credit card dues, he or she may go bankrupt. Because bankruptcy is reflected on the debtor’s credit history for ten years, it makes him ineligible for any fresh loans or credit, and may cause myriad financial problems. Generally, loans such as credit card loans are unsecured loans and attract high interest rates. Through a secured debt consolidation loan, debtors can convert all such debts in to a single payment of low interest. Debtors can seek professional advice from reputed credit counseling organizations before choosing the right consolidation program. These organizations have a panel of credit counselors who are experts in consumer credit and debt management. Credit counselors evaluate the financial situation of a debtor and accordingly suggest a suitable debt consolidation program. Generally, a genuine organization charges a fixed fee per month for every debt account.

As the rate of interest on a debt consolidation loan is low, the amount of monthly installment is also relatively less. Many financial institutions also offer tax benefits on the interest paid on a debt consolidation loan. However, the loan period of a debt consolidation loan is generally long. As a result, the debtor ends up paying much more than he actually owes. Generally, debt consolidation loans are secured against the debtor’s property. In the event of failure to repay the consolidation loan amount, the property can be confiscated. Hence, a debtor must carefully weigh the pros and cons associated with debt consolidation loan.

As a part of debt consolidation program, the debtor can choose from a variety of consolidation loan options. Homeowners have the choice of obtaining secured loans by using their house as collateral. If the debtor’s house has been already mortgaged, he or she can obtain a home equity loan to consolidate the debt. Home equity can be calculated by subtracting the amount of the mortgage balance from the current market value of the house. Debtors can also obtain a personal debt consolidation loan, which is unsecured. However, this loan also comes with high interest rates.

Some non-profit organizations also offer free debt consolidation advice. Various lending institutions and financial companies generally fund these organizations.

Consolidation-Web.com Consolidation provides detailed information on Debt Consolidation, Credit Card Debt Consolidations, Consolidation Loans, Student Loan Consolidations and more. Consolidation is affiliated with i-ConsolidateDebt.com Consolidate Debt Online.