Securities for income investors

Several years ago, at a time when the stock markets were going through another rough period, I introduced an Income Portfolio for my Internet Wealth Builder (IWB) newsletter. It was defensive in nature and was designed to take advantage of the low interest rate climate of the day.

I discontinued the portfolio when the bull market surge of 1998 to early 2000 caused readers to lose interest in such a low-key approach to investing. The portfolio was, to put it bluntly, boring. It never did much of anything in terms of market values. All it did was preserve capital and generate a steady, tax-advantaged income stream.

Doesn’t sound so bad now, does it? In fact, there are many investors who think boring is beautiful these days. If you’re among them, here are some securities that would fit comfortably into a low-risk, income-oriented portfolio. All these securities are active IWB recommendations. Discuss these ideas with your financial advisor before acting.

Royalty Trusts

Canadian Oil Sands Trust (TSX:COS.UN) All energy trusts are vulnerable to oil price fluctuations and this one is no different in that sense. So it was not a surprise when the trust rerted that cash flow from operations for the second quarter of 2002 was only $19.3 million, or $0.34 per unit, compared to $49.2 million, or $0.87 per unit, in the second quarter of 2001. However, the trust continues to maintain a quarterly distribution of $0.50 a unit, for a yield of about 5 per cent based on the recent share price. A good portion of the payment is tax-sheltered if received outside a registered plan. This has the advantage of benefiting from the longest-life reserves of all the energy-based trusts currently on the market because of its 21.74 per cent interest in the Syncrude oil project.

TransCanada Power LP (TSX:TPL.UN) This is a top-class limited partnership that owns several electrical generating stations. It pays a quarterly distributions of $0.63 a unit, for a yield of about 8 per cent based on the recent price. Be careful about putting this into a registered plan as it is classed as foreign content.

Northwest Company Fund (TSX:NWF.UN) This income trust, which operates general stores across the Canadian Arctic and Alaska, keeps churning out steady results. Quarterly distributions are running at $0.375 a unit, for a projected yield of 7.6 per cent based on the recent price.


Riocan REIT (TSX:REI.UN) Riocan invests in shopping malls so there is some risk here if the economy goes into a nose-dive. However, the core tenants are solid (Wal-Mart, Loblaw, etc.) and the trust has an excellent long-term record. Current distributions are $0.0925 a month, for a projected annual yield of just under 9% based on the recent price. All REIT income is tax-advantaged when units are held outside a registered plan.

Northern Property REIT (TSX:NPR.UN) The price of this REIT has moved up smartly since it was launched in late May at $10 and the trust recently announced its first monthly distribution in the amount of $0.0958 per unit. That projects to $1.15 over a year. However, this trust has no proven track record to date. At a recent price of $11.50, the price is up 14.5 per cent from the IPO, but the projected yield of 10 per cent is still attractive.

Mutual Funds

GGOF Guardian Monthly High Income Fund (Mutual fund units). While stock markets have been battered, this fund has done very well, scoring a 12.7 per cent gain over the year to June 30. Distributions are holding steady at $0.06 per month, for a projected tax-advantaged yield of about 8 per cent based on the recent NAV. Part of the payment is tax-advantaged.

Citadel Diversified Investment Trust (TSX:CTD.UN) Citadel announced an August distribution of $0.064 a unit, payable Sept. 16, which brings the total to date for fiscal 2002 to about $0.60 per unit. If the current pace is maintained, total distributions for 2002 would come in around the $0.75 range, again with tax advantages. That would work out to a yield of around 7.5 per cent based on the recent price. The closed-end fund holds a portfolio of high-quality royalty trusts, REITS, and similar securities. Top holdings as of mid-July included ARC Energy Trust, Enerplus Resource Fund, Morguard REIT, Heating Oil Partners Income Fund, Energy Savings Income Fund, and Retirement Residences REIT.

Adapted from an article that originally appeared in the Internet Wealth Builder, a weekly e-mail investment newsletter that is edited by Gordon Pape and features some of Canada’s top financial experts.