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):
| After-Tax Income: | |||||||||
| Income Range | Marginal Rates | $0.46 | $0.34 | ||||||
| Low | High | Income | Dividends | Income | Dividend | Difference: | |||
| $ – | $ 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.
| After-Tax: | After-Tax: | |||||
| Income Range | Marginal Rates | $0.46 | $0.34 | |||
| Low | High | Income | Dividends | Income | Dividend | Difference: |
| $ – | $ 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) | |
What did you make of the Rogers Sugar earnings in general and do you still hold the units?
Very slightly below my expectations, but well within acceptable. The deferred financing fee from the convertible debentures (i.e. financing costs) skewed the cash figures slightly, but even when factoring this in they were below the June quarter.
Yes, I still hold units.
Since your on the subject of yield chasing and i enjoy following good public dividends i have a question.
Excluding most larger well known companies (ie. banks, insurance cos, utilities) what are some of the more solid yields in public companies that you’ve found?
By solid i mean: good balance sheets, earnings stable, hopefully growth potential and payout 75% or less of current earnings.
I am always looking to add to my watchlist of such companies and would be interested in what you rank as a top 10?
thanks
Derek
Derek, you are looking for investment “holy grails” and in my humblest opinion, there are none (or very very few), assuming your other criterion is “they are valued cheaply”. That’s what we’re all in the markets for – to find exactly the candidates with the characteristics you are specifying!
Even Rogers Sugar right now looks fairly valued, and I don’t buy things at fair value.