‘Long live the new king!’ as trusts grow

Income trusts are still searching for the upper limits in Canada, despite warnings of an impending reversal.

Dominated by the energy trusts, 203 trusts now trade on the Toronto Stock Exchange, an increase of 28 in just six months, carrying a market capitalization of C$153 billion, up C$32 billion from the end of 2004.

At that pace it may be only a matter of time before the trust grouping challenges the exchange’s other powerhouse sectors — financial at C$380 billion and energy at C$314 billion.

It’s enough for BMO Nesbitt Burns strategist Ben Joyce to predict in a research note that the influence of trusts will prevail well into 2006.

New issues by trusts reached C$5 billion in the March-June quarter, matching what would once have been normal for common equities, while common shares on Canada’s major exchange are into decline for the first time in 42 years.

Joyce said the spectacular transformation results largely from the favorable tax treatment for trusts compared with common stocks.

In his words: “The king is dead, long live the new king!”

Percentage of payout expected to drop

Brian Ector, a Scotia Capital analyst, said in a research note that he expects a record low percentage payout to be reported in this year’s second quarter.

The ratios will likely fall to 68 percent from 74 percent in the first three months and 78 percent in the second quarter of 2004.

Ector estimates cash flow will rise by an average 20 percent on a year-over-year basis, led by Acclaim Energy Trust with a 57 percent gain, followed by Paramount Energy Trust at 39 percent and NAL Oil & Gas Trust and Petrofund Energy Trust, both at 38 percent.

He noted that the trusts posting the largest hikes in cash flow are those that have completed acquisitions in the past 12 months that have increased their size by one-third or more.

—Gary Park