What we're looking for
A few good income trusts. You remember them, right? All the rage until the federal government hammered the sector by announcing a new tax on trusts that will take effect in 2011.
Trusts are still around, and some are still worth a look as investments. To find some examples, let's apply a measure of a business's ability to generate wealth for shareholders called economic value added, or EVA. Think of EVA as a very strict indicator of profitability.
Today screen All the trusts on our list score 1.0 or higher on the economic performance index (EPI), which provides a way of comparing the EVA for businesses in different sectors. That's the bare minimum for being considered a wealth creator. In technical terms, the EPI is a ratio of a stock's return on capital to its cost of capital, including debt and shares.
The trusts on our list share another characteristic - they're all down more than 20 per cent over the past year, which means their yields are high in comparison to government bond yields.
Be sure to do extra due diligence on high-yielding stocks or trusts. Remember, a fat yield is a sign investors are worried about a trust (yields rise as share prices fall).
Today's data comes from the EVA specialists at Montreal-based StockPointer (StockPointer.ca), which has included the return on capital for all trusts on the list. ROC looks at how effectively a company deploys the money put up by shareholders and lenders, and a reading of 10 per cent or more is considered good.
What we found
Lots of energy trusts and a sprinkling of other cyclical trusts such as Labrador Iron Ore Royalty Income Fund and Westshore Terminals Income Fund. The conservative names on this list include an electrical power generator, Northland Power Income Fund; and a pipeline trust, Inter PipeLine Fund.
Rob Carrick