Info on income trust funds

[mustangjoe]

Anyone out there with knowledge of the ins and outs of income trust investing?

Well, what I want to do is not really 'investing'.

These companies that offer trust units come out with a monthly report that rambles on like so:

"today confirmed its March 15, 2006 cash distribution will be Cdn $0.25 per trust unit. The distribution is net of amounts withheld to finance capital expenditures. The ex-distribution date is February 27, 2006. The distribution will be payable to all unitholders who hold Class A or Class B trust units on the record date of March 1, 2006."

So to get paid on March 15, I need to own said company trust units on March 1. Does this mean I can own it for 2 minutes during the day and still get paid, or do I need to own it after the closing bell?

What I'd like to do is buy the units, sell it minutes later, put the same money into another trust fund for a few minutets, so on and so forth. Does it work this way, or am I in lala land again?

Can anybody clarify the technical issues?

Some of these units pay out 15% +.

 

[Lady Companion]

Yes, you can certainly own the trust for just that day and receive the payout. I'm really not sure if it is time specific or if it is for the entire day - but I do know that they will not pay out multiple times for the same set of shares - so only one person owning the trusts that day would receive the dividends. I assume it would be as the bell whistles for closing.

Not to play devils advocate, but here is where the holes in your plan lie: Income trust funds invariably go up proportionatly as the payout date nears, and then fall again as soon as the necessarry date to own them passes. It naturally compensates for the payout on it's own. At the very least - it will minimize your gain. You will create a capitol loss when you sell them the next day, as the price will go down.

The 15% is over the course of a year. Therefore if it is a trust fund that pays out monthly, the monthly gain is 1.25% Assuming that the market doesn't fluctuate and go up as the day to have approaches, and then drop again by the 1.25% the next morning, and assuming that you actually miraculously end up with the 1.25% as a profit - you still have the stock trade fees to contend with.

My advice on income trusts is to buy a solid one which has a good long term outlook (or at the very least a steady outlook). Look at the 8-22% residual income as a great return on investment in this day and age (and taxed at a preferential level Look to hold for the long term, not to day trade.

 

[sdw]

Anyone out there with knowledge of the ins and outs of income trust investing?

Well, what I want to do is not really 'investing'.

These companies that offer trust units come out with a monthly report that rambles on like so:

"today confirmed its March 15, 2006 cash distribution will be Cdn $0.25 per trust unit. The distribution is net of amounts withheld to finance capital expenditures. The ex-distribution date is February 27, 2006. The distribution will be payable to all unitholders who hold Class A or Class B trust units on the record date of March 1, 2006."

So to get paid on March 15, I need to own said company trust units on March 1. Does this mean I can own it for 2 minutes during the day and still get paid, or do I need to own it after the closing bell?

What I'd like to do is buy the units, sell it minutes later, put the same money into another trust fund for a few minutets, so on and so forth. Does it work this way, or am I in lala land again?

Can anybody clarify the technical issues?

Some of these units pay out 15% +.

You have to be the shareholder of record on the ex-distribution date of February 27, 2006. You would be holding the shares for about a week to allow for the record keeping between your broker and the company.

An example would be the special distribution that Microsoft made last year. The shares peaked over $26 on the ex-distribution date and dropped into the $22 range the day after the payment. In other words the distribution was priced into the shares. Microsoft remains range bound despite the huge cash resources they possess because everyone expects their legal problems to continue and are also pricing in the chance of alternative Operating Systems.

You can find numerous resources at http://moneycentral.msn.com/home.asp or http://www.motleyfool.com

It would be nice to be able to own a share for only a few minutes and reap the full benefit of a distribution, however, the world doesn't work that way.

 

[carguy]

not a good strategy

mustangjoe

There is some risk with your daytrading income trust strategy. First you must hold the trust for 2 weeks or so (ie. be the unitholder of record before distributions are paid) and then you are bear the risk of the trading cost and the change in price of the trust unit. Using Riocan as an example, it is volatile on a short term basis but a good long term performer.

http://finance.yahoo.com/q/bc?s=REI-UN.TO&t=2y&l=on&z=m&q=l&c=

A better strategy would be to pick solid companies in growth sectors and bank on the combination of trust income and capital gains. Real estate and energy trust have been doing very well over the last 2 years.

I've been lucky as my trust portfolio has yielded 41% this year before distributions. However this does not make up for my HEAVY losses from the tech bust of 2000-2002 ... otherwise I would be hobbying a lot more!

 

[Ais]

As you put it you are in lala land. You need to buy the trust units on the ex distribution date because it takes 3 trading days to settle the units for you to be the registered holder on the last day of the month to be eligible to be paid the distribution. You could then sell them on the next day (i.e. the 2nd), it will take another 3 days to settle etc. The problem with this is the theory of income trusts alluded by Lady Companion above. Technically the value of the unit should decrease by the amount of the distribution unless the company has done something to compensate for that decrease. So for example a unit worth $10 before the distribution should be worth $9.75 after a $.25 distribution all other things remaining the same. Although market and theory do not always agree.