Rogers Sugar Income Fund announced their quarterly results yesterday. The operational performance is not relevant to this post, but rather the announcement of how they will be treating their distributions after 2010 is over:
Management of Lantic and the Board of Trustees of the Fund continue to work on a plan to convert from the current income trust structure to a more conventional corporate structure. This conversion is expected to be effective as of January 1, 2011, in order to allow the current Unitholders of the Fund to maximize the benefits of the current income trust structure. The current intention is to pay quarterly dividends of approximately $0.085 per share, in order to maintain cash dividends to shareholders of the converted structure at levels that would provide an after-tax distribution equivalent to that currently enjoyed by our taxable Canadian Unitholders. The amount of dividends paid following the conversion will be at the discretion of our Board, and will be evaluated quarterly and may be revised subject to business circumstances and expected capital requirements depending on, among other things, earnings and other conditions existing from time to time.
Currently the distribution rate is $0.46/unit of interest income. At yesterday’s closing price of $4.91/unit, this translates into a 9.37% yield. A $0.085/quarter dividend translates into $0.34/year, or a 6.92% dividend rate. This is also a 26% haircut from the current payout rate. This is relatively comparable to other businesses that are publicly traded and give out dividends representing most of the free cash flow of the corporation.
The following table is a before-and-after concerning a unitholder’s after-tax distributions in British Columbia, assuming the units are held in a non-registered account, using 2010 rates (which is a critical assumption of this model, 2011 marginal rates will be slightly different due to changes in the dividend tax credit):
|Income Range||Marginal Rates||$0.46||$0.34|
|$ –||$ 35,859||20.06%||-12.59%||$ 0.368||$0.383||(0.0151)|
|$ 35,859||$ 40,970||22.70%||-8.79%||$ 0.356||$0.370||(0.0143)|
|$ 40,970||$ 71,719||29.70%||1.29%||$ 0.323||$0.336||(0.0122)|
|$ 71,719||$ 81,941||32.50%||5.32%||$ 0.311||$0.322||(0.0114)|
|$ 81,941||$ 82,342||36.50%||11.08%||$ 0.292||$0.302||(0.0102)|
|$ 82,342||$ 99,987||38.29%||13.66%||$ 0.284||$0.294||(0.0097)|
|$ 99,987||$ 127,021||40.70%||17.13%||$ 0.273||$0.282||(0.0090)|
|> $127021||43.70%||21.45%||$ 0.259||$0.267||(0.0081)|
As we can see, the after-tax dividend post-2011 is slightly higher than the pre-tax income distribution for all income brackets.
Also, as I have written before, anybody holding income trust units (other than REITs) in their RRSPs and TFSAs should be moving them into their non-registered accounts at the beginning of 2011.