iluvnascar wrote:The yields on these trusts are ridiculously high....reflecting, in part, lack of liquidity and the knowledge that they will take a big tax hit in 2011. Nevertheless, I think they have potential to show VERY modest growth in distributable income and will head into 2011 with 10%+ tax-efficient yields.
Well if you take the 11.5% yield, and put a 30% tax on it, you're down to 8.05%. (worse, if you're in a 40% tax bracket!)
Assume growth of 3-4%, and the total (after-tax) return should be 8%+4$ = 12%.
For the sake of comparison, Shoppers Drug Mart is trading at a taxed P/E of 20, an E/P of 5%, but with a 15%/annum growth rate. So that would imply a 20% after-tax return.
You can run through the same sort of calculation for Telus... P/E of 12, growth as fast as the economy, if not slightly faster. The implied return is around 12%.
So I don't see the yield on BPF.UN to be particularly
high. Shoppers is riskier than Telus/BPF. But the implied return, if they can sustain earnings growth, is commensurately higher. BPF.UN doesn't appear to be a majorly mispriced security, IMHO (unlike much of the trust universe), but its probably
something that a cash-seeking investor could safely buy and not lose sleep over at night.