Tuesday, February 27, 2007

Market Crash?

I don't have a clue if this is the begining of a major correction. All I know is that companies that pay good dividends will get hurt the least. The reason is that those that own income producing assets are less inclined to sell them and loose the cash flow.

However, I took a big hit today as my total portfolio dropped $40,000 in value.

This is hard to take but if you pick up your ball and go home you will miss those days when ones portfolio rises.

I am hanging in for now.

I was hoping that Harvest Energy would have dropped further today as its my next acquisition target. I guess I am not the only one looking to buy Harvest.

Monday, February 26, 2007

Crescent Point Energy Trust CPG.UN-TSX

Today I bought 1,000 units of Crescent Point Energy Trust. This trust is 80% oil and their acqusition of Mission Oil makes them the largest oil producer in the Province of Saskatchewan.

This Trust has lots of drilling targets and will not need to go to the market to fund capital expenditures.

With enhanced recovery techniques such as Carbon Dioxide flooding I think they have a good chance of increasing reserves per unit while at the same time paying out a healthy distribution of $0.20 per month which is an annualized yield of 13.3%.

So I get growth plus a healthy yield. This meets my investing for income strategy.

I also think that with the carbon dioxide sequestering they will pick up future global warming credits if they come to pass.

Plexmar Resources PLE-X +12.3% Today

Boy this BLOG is pretty influential. Yesterday I talked about Plexmar Resources and today it closed at $0.64 up $0.07 (+12.3%).

It traded over 2.1 million shares.

I suspect the market is expecting them to announce their drilling program shortly.

Sunday, February 25, 2007

Plexmar Resources PLE-X

As an income investor I must make a confession. I do own one junior resource stock. I own this stock as a lottery ticket.

The company is called Plexmar Resources. It trades under the symbol PLE-X. I presently own 70,000 shares. I bought it for all the following (wrong?) reasons:

1) Plexmar's property surrounds Aurelian's property in Peru. For those of you who are not familiar with Aurelian; They went from a penny stock to $30 in 2006. They were the biggest gainer on the TSX in 2006;

2) Plexmar's stock trades an average of 1 Million shares per day so its easy to get in and out of;

3) Precious metals are in a bull market.

4) The management has a reasonably good reputation.

The odds are that Plexmar will not be a home a run but I am a human being and I like to have at least one stock that I can dream about hitting a home run. If Plexmar does hit a home run,I will re-invest all the proceeds into income producing assets.

I do not recommend you invest in this stock unless its money you can afford to loose.

Once again, please perform your own due dilligence.

Cramer Likes General Maritime Corp. GMR-N

As a follow-up to one of my recent posts on General Maritime Corp.

Jim Cramer of CNBC's Mad Money program likes General Maritime Corp. He mentioned it on Friday February 23, 2007 program when some asked during the "lightning round" about Frontline (FRO-N) which is another oil tanker stock.

Follow this link at thestreet.com;


Also take a look and listen to this video clip by a portfolio mangaer;


Please perform your own due diliigence.

Saturday, February 24, 2007

The Power of Compounding

Compounding is the royal road to riches. Compounding is the safe road, the sure road, and fortunately, anybody can do it.

To compound successfully you need the following four ingredients:

1) Perseverance in order to keep you firmly on the savings path.

2) You need intelligence in order to understand what you are doing and why.

3) And you need knowledge of the mathematics tables in order to comprehend the amazing rewards that will come to you if you faithfully follow the compounding road.

4) And, of course, you need time, time to allow the power of compounding to work for you. Remember, compounding only works through time.

Friday, February 23, 2007

Harvest Energy Trust has Outperform Rating from Royal Bank Financial

On Febraury 20, 2007 Royal Bank Financial placed an outperform rating on Harvest Energy Trust (HTE.UN-T). They now have a $28 target price.

What makes this rating interesting is that RBC Financial has the lowest ratings and target prices on all the Canadian Energy Trusts. They are very conservative on their assumptions.

They have done a detailed analysis of their refinery operation at Come-By-Chance Newfoundland.

Harvest presently pays $0.38 per month distribution which annualizes to a 16.3% yield at the $28 target price.

On my previous post I forecasted a distribution cut. However, their last press release indicated that their 2006 distributions were 100% taxable. This is interesting because for the next 4 years Harvest must payout 100% of their taxable income or they will attract the full corporate tax rate on any taxable retained earnings. Therefore, they may not cut their distribution that much in 2007.

You can read RBC's report by following the link provided.

Please perform your own due diligence.

Petrowest Energy Services PRW.UN-T

Today I bought 1,000 units of Petrowest Energy Services. It trades on the TSX under the symbol PRW.UN.

It closed at $7.20 per unit. Petrowest pays a $0.10 per unit distribution per month which annualizes out at $1.20 per year for a 16.7% yield.

Please perform your own due diligence.

Thursday, February 22, 2007

Bought 600 Shares of General Maritime Corp. GMR-NYSE

Today General Maritime Corp. (GMR-N) announced a special dividend of $15 a share payable to shareholders of record on March 9, 2007.

I paid just under $43 a share for the stock. I hope to sell around $35 per share some time after March 9, 2007.

If this strategy works I will have made $7 a share profit.

Wednesday, February 21, 2007


I bought another 1,000 units of EIT.UN today on the TSX.

This brings my total holdings to 33,000 units.

This exchange (TSX) traded fund yields 13.2%.

This fund holds a basket of 60 companies and is trading at a 13.6% discount to Net Asset Value.

So I get diversification and a 13.2% yield on my investment and the market value discount is like a free insurance policy.

These type of anomallies normally do not last long in the market place in my opinion.

Please perform your own due dilligence at http://www.enervest.com/main/page.php?page_id=2 .

Tuesday, February 20, 2007

Guest Newsletter Posted at Investingforincome.com

Our newsletter send via email last week to subscribers is now available at our web site at www.investingforincome.com.

Monday, February 19, 2007

Income Participating Security (IPS)

IPS (Income Participating Security), also known as a “stapled” security (like DR.UN) consists of a piece of equity ownership and a piece of debt, which get traded together (some can be separated which are called "paper clipped units").

Each month, they pay a "dividend" and the remainder is interest. These types of income producing securities are not subject to the distribution tax on trusts that was announced on October 31, 2006.

These types of securities do not pay distributions. They pay “dividends” and they pay interest on its debt most of which is held by the same people that own the equity.

The Canadian Government seems to have exempted these types of securities from the new "Trust Tax". However, we are all waiting for the final legislation before we decide how to go forward.

If this type of structure is exempted from the new Trust Tax then I suspect we will see quite a few of the existing Trusts convert to this format.

Saturday, February 17, 2007

Keep an Eye on Harvest Energy Trust HTE.UN-TSX

I have a special place in my heart for Oil and Gas trusts because of their juicy yields. Plus I feel it's a great way to play the increasing tightness of oil and gas supply. I like buying a business that produces a product that China wants.

Plus I get paid to wait for the fundamentals of peak oil to kick in.

I plan to add to my position in Harvest Energy Trust. I think we will see the low for Harvest at the begining of the oil and gas shoulder season which starts in March. I will probably add to my position then.

I have been concentrating on Harvest because I see it has unrecognized value in the trust sector because of its recent purchase of the Come-by-Chance refinery in Newfoundland. Most analysts will not take a chance on valuation metrics until they see a full quarter of revenues from the refinery.

This oil & gas trust is the closest thing to an integrated oil company we will ever see in the trust sector. It is yielding a wopping 17.3%.

I think there is a chance that they might cut their distribution and when they do I will be buying on the dip.

Friday, February 16, 2007

Diversified Income Trust Exchange Traded Fund SDT.UN-T by Sentry Select

The table below lists the Net Asset Value (NAV) of Sentry Select's Diversified Income Trust Exchange Traded Fund (ETF). It trades on the TSX only under the symbol SDT.UN

February 15, 2007 $5.47
February 8, 2007 $5.42
February 1, 2007 $5.37
January 25, 2007 $5.35
January 18, 2007 $5.31
January 11, 2007 $5.17
January 4, 2007 $5.18

As you can see from the start of the year the NAV has gone up every week for a total of 4.6% return on NAV. Plus we have been paid 2 monthly distributions of $0.045 per month for a total return of 6.4% for 2007. This is a testament to the investment acumen of the fund manager. I suspect that some of the increase in NAV is due to the Manager's buy back of units. At today's market price all unit buy backs are very accretive to the unit NAV.

The other important point is that it shows that the trust sector is recovering in spite of the negative press in Canada.

The market value of the the units has not increased at the same pace as the NAV but in time the increasing NAV will pull the market price up.

The fund is now my largest holding.

Please perform your own due diligence before taking any positions discussed in our BLOGs.

Wednesday, February 14, 2007

Peyto Energy Trust PEY.UN-T

Peyto just released their year end reserve report and its pretty good. This company was my largest holding at one time but I am down to only 3,000 units today after the Canadian Governments slaughter of the income trust sector. Peyto has struggled for the past 18 months with stagnant production per unit growth and weak commodity prices.

However, this reserve report places their net asset value of $23.08 per unit based on total proven reserves at a 5% discount. It closed today at $17.70 per unit which translates to a a 23% discount to net asset value. Furthermore, these units pay $0.14 per month distribution which results in a 9.5% yield based on todays closing price.

In my book this company fits my investing for income theme. It's a growing business (although slowly) with a nice monthly payout.

Peyto has been criticzed for its high payout ratio's (ratio based on cash distributions plus capital expenditures per unit) but they have proven that high payout ratio's are acceptable as long as the capital expenditures are accretive to unit holders.

Be careful though, most capital expenditure budgets for oil & gas trusts are only to maintain production per unit.

I feel Peyto will be above $25 per unit by year end.

Please conduct your own due dilligence before taking a position.

Tuesday, February 13, 2007

Cash Distributions Force a High Level of Corporate Governance

Today the Parliamentary hearings resume on the taxation of Canadian Income Trusts and other flow through entities. One area where we believe that trusts probably have excelled (and nobody seems to talk about), relative to most of their corporate cousins, is in the area of “governing” over cash distributions and the impact this has on the behaviour of management.

Governing over cash distributions is far more difficult than just approving a cash distribution. It requires the Board and Management to consider the financial impact to the organization, both short term and long term, of making that cash distribution. Cash distributions require Board approval, which means, for most trusts; they must meet at least monthly.

We believe that by paying distributions on such a frequent (monthly) basis, Managers and Directors must maintain a very good understanding of the underlying business and its current and potential future financial condition.

We believe that when both management and the directors focus their attention on the cash flow being generated by the business, and then consider on a regular basis the financial impact of making a cash distribution to its equity investors, a high level of financial corporate governance is forced on the organization. Imagine you are sitting on a board of trustees being asked to approve a monthly cash distribution to unitholders. What steps would you take in order to gain sufficient comfort that indeed the trust could afford to make the distribution this month? Now think ahead to next month, and the following months? And what about an increase to the current level of cash distributions? Do not forget the potential personal liability attached to the role of a Director. One thing is likely for sure; you would soon be very focused on many of the aspects of the business. It is a big responsibility.

Now imagine that the trust of whose board you are a member, is considering an acquisition. And to complete this acquisition, the trust will require debt and equity funding. And, after the acquisition and financing is completed, cash distributions are expected, on schedule, from an even larger constituent of investors. Trusts leave little room for error or omissions, because the expectation of cash distributions to equity investors is constant. And you can be sure the lenders have done their homework.

When it comes to monitoring the lifeblood of a business, its cash flows, and everything that can impact that cash flow, trustees are forced to have their fingers on the pulse of that business, each and every month. And that, we believe, is a high standard on the corporate governance scale.

In conclusion, we feel that the cash distributions impose better corporate goverenance on companies. Most earnings that are retained on the balance sheet seem to disappear in transactions that are not accretive to the shareholder. In the the long run the capital efficiency of our companies would improve under a regime of "forced" distributions to shareholders.

There is no better example than BCE (Bell Canada) who have a track record of squandering shareholders capital.

It is my belief that todays crisis over Corporate governance has its root cause with taxation. Our tax systems encourage company's to retain earnings rather then distribute them to shareholders. This is why today's corporations have such low yields.

Furthermore, retained earnings bloat the balance sheets and theoretically drive share prices higher which in turn make corporate stock options more valuable. This is better for option holders than for shareholders.

I wonder if this is why BCE phoned the finance minister back in 2006 begging to "level the playing field".

I hope somebody addresses this issue at the parliamentary hearing today.

P.S. Excerpts of this BLOG were derived from an RBC Capital Markets report published April 19, 2005.

Monday, February 12, 2007

February US Natural Gas Supply Up 5 BCF/Day Over January

Robry is still forecasting that for the month of February 2007 US natural gas supply from all sources has increased over 5 BCF/Day over the month of January 2007. I have never seen such a demand response since I have been investing in oil and gas (starting in 2001). If there is that much "spare" supply available then we could see real downward pressure on natural gas prices over the next 3-6 months.

I am holding off on accumulating any more oil & gas trusts until I see where the trend is headed.

Sunday, February 11, 2007

Penn West Energy Trust

I was listening to this weeks radio show at financial sense and there was a short interview with Zapata George who is a real energy bull. He is recommending Penn West Energy Trust (PWT.UN-T PWE-NYSE) in spite of the Canadian Government's "trust tax".

Financial sense newshour has a large following and I expect that we will see a bump in the price of Penn West on Monday morning.

I all-ready own Penn West but I am delaying adding to my position until I see where the price of oil and gas settle down to in the coming shoulder season.

Saturday, February 10, 2007

Steady Rise in Net Asset Values of TRUST ETF

This week the Net Asset Value (NAV) of SDT.UN-T increased $0.05 per unit (from $5.37 to $5.42 per unit). There has been a steady rise in NAV since the beginning of the year. The same is true for EIT.UN-T. Some of this rise in NAV is probably due to share buy backs. The point here is that income trusts are making a slow come back in spite of the continuous negative press in the main stream media. I expect this upward trend to continue.

Tuesday, February 6, 2007

Passive Income

I want you to take a step back and just think about this question; Why do you invest for retirement?

The answer that you have been bombarded with is something like this;
One must invest and have there money grow so that once they retire they can live off the income from no risk interest paying investments. Your planner probably came up with a fancy work sheet and questionnaire and at the end they tell you based on X% interest you will need $Y when you retire so that you can have an income of $Z per month when you retire. This income is called passive income. If you think about it, that is what we are all in the end trying to achieve.

Passive income is when you work once but continue to get paid over and over again from work you're no longer doing. Passive income, in most cases is income earned from real estate investments or true businesses owned and operated independent of your personal involvement. Investing in or creating true assets that provide passive income for you is your ticket to wealth. To gain financial freedom you need this cash flow from Passive Income. So far so good.

This is the thought pattern I went through back in early 2001. However, this seemed impossible. The market had crashed. I had no Idea how I could save enough from my earned income to eventually build up a nest egg. So, like everyone else we keep chasing the big score on a real estate deals, stock market or even a lottery.

There is no such thing as something for nothing. That is why most of will fail at achieving the big score.

The problem is that Wall Street has it backwards. Instead of focusing on investing for capital gains, you should focus on income invest immediately. That's right forget about capital gains-no matter how old you are. I decided that when I retire I need so much a month to live on. So at 45 years old I sold all my stocks and mutual funds in my RRSP (IRA) and focused on income producing securities. This is when I discovered Canadian Income Trusts. I had less than $70,000 in the RRSP at the time and today that account alone is producing over $1,000 per month income. Because of compounding this account will probably be producing about $14,000 per month income when I turn 65 years old. Now that's passive income! This does not include my other portfolios.

To put it simply, passive income is income that continues to generate money for you even when you have stopped working. Passive Income is financial freedom with real financial security.

For example, your rental income is a good source of passive income. Rental income includes payments made by an occupant for the use of property, payments to cancel a lease, advance rent, and any security deposit used as a final payment of rent. If you own a house and you rent it out, you will continue to receive your rental income for as long as you have a tenant, regardless of whether you work or not. Similarly, if you invest in unit trusts and it generates dividends for you, the dividends are your passive income. There are many ways to create passive income.

Financial freedom is not having to rely on a paycheck for your standard of living. If you are sick, or want to take a vacation, you will still have money coming to you from your investments. This is Passive Income. Passive Income is Freedom. Passive Income is Security.

The earlier you start planning and building your passive income, the earlier you can achieve being financially free. It takes time and effort, especially in the beginning, just like building anything worthwhile does. You build a foundation and gradually build up your passive income from there.

There are many types of passive income such as
· Private business income
· Real estate income
· Residuals on mutual fund sales (This is what financial planners, brokers and the entire financial industry runs on)
· Welfare Income
· Unemployment Insurance Income
· Workers Compensation Income
· Disability Income
· Government Pension Income
· Employer Pension Income
· Registered retirement plan income
· Interest Income
· Royalty Income
· Dividend Income
· Income Trust Income (Our favorite)

When you look at the list above you can see why government social programs are so popular. By the way if you plan your future around passive income from Government you will become bitter and disappointed. By the time you figured out that you have been fleeced it will be too late. Why? Because the passive income they give you will be less in real purchasing power than you think. The problem is that it is so gradual that the unsuspecting public does not see it happen.
As a matter of fact the real reason Mutual Funds are so popular is because they generate billions of dollars of passive income for the financial industry. Not for investors (suckers?) like you. This is why they advertise so much. This is why they tell you to buy and hold. Do not fall for the line that your planner gives you that he invests in the same thing because he is not relying on his investments for his passive income. He is relying on yours.

How can you build your Passive Income?

The cornerstone of all wealth is understanding the difference between assets and liabilities. The difference is this: Assets put money IN your pocket. Liabilities take money OUT of your pocket.

A liability is something that takes money out of your pocket." (Monthly and continuously) Most people think their home, car, and other possessions are assets. But, the truth is that in most cases those things take money out of your pocket. They cost you money. They don't make you money. Those things are liabilities. They take money OUT of your pocket each month.

Here comes a shocker----Equity in your home is dead capital. You must convert that equity into passive income.

An asset is something that puts money in your pocket monthly and continuously. When you have more money coming IN from real assets than you have going OUT to pay for liabilities, you will be financially free. This is really all you need to know. If you want to be rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities. It's not knowing the difference that causes most of the financial struggle in the real world.

Our liabilities are someone else's (usually the bank's) assets. Most people mistakenly think of their home as their biggest asset. It is an asset - the bank's asset. Our home is usually our biggest liability in that it takes money out of our pocket month after month.

The rich buy assets. The poor only have expenses. The middle class buy liabilities they think are assets.

Real assets fall into several different categories:

1) Businesses that do not require your presence;
2) Dividend paying stocks;
3) Bonds;
4) Income Trusts;
5) Income-generating real estate; 6) Notes (IOUs); and 7) Royalties from intellectual property (books, music, patents?).

Most people use their money to buy liabilities whereas the rich use their money to buy assets that pay for their liabilities.

Start to plant seeds inside your asset column. Start small and plant seeds. Some grow; some don't.

There are three different types of income: Earned Income; Passive Income; and Portfolio Income. You must know what kind of income to work hard for, how to keep it and how to protect it from loss. This is the key to great wealth.

Earned income is income derived from your job. It is linear in nature. You work for an hour and get paid only one time for that one-hour's work, and that's it. Your income stops when you stop working.

The rich don't work for money; they have their money work for them. This is achieved through portfolio income and passive income.

Portfolio income is the income you receive from interest, dividends, royalties and gains you get from investments in paper assets.

Passive income is when you work once but continue to get paid over and over again from work you're no longer doing. Passive income, in most cases is income earned from real estate investments or true businesses owned and operated independent of your personal involvement. Investing in or creating true assets that provide passive income for you is your ticket to wealth. To gain financial freedom you need this cash flow from Passive Income.
But note the definition of a business!

Owning a business that provides passive income means the business works without you having to be there. You have a business if you can leave it for a year or more and then return to find it more profitable and running better than when you left. But if your business would falter without you then it's more like a 'job' than a business.

So you can think of earned income as coming from something you do. Passive income comes from businesses or real estate that work for you. And portfolio income comes from paper assets that work for you.

Everyone has income, but not everyone maximizes the use of that income. Of the four income patterns, the one to shoot for is that of the rich. And one myth you can dispose of is "It takes money to make money." Regardless of your income you can begin to acquire assets that return an income every year -- passive income that comes in, rain or shine, whether you work or not. This is money working for you, not you working for money.

Unlike passive income, earned income or linear income requires that you work for your money. You are basically exchanging your time and effort for money. You get paid when you work. The moment you stop working, you don't get paid.

The key to becoming wealthy is the ability to convert earned income into passive income and/or portfolio income as quickly as possible. The taxes are highest on earned income. The least taxed income is passive income. That is another reason why you want your money working hard for you. The government taxes the income you work hard for more than the income your money works hard for.

The rich incorporate their assets and are able to: Earn, Spend and Pay Taxes on what is left.

The poor and middle class work at a job and must: Earn, Pay Taxes and then Spend what is left.

This is so powerful that we predict that if our governments do not make some attempt to reduce corporate taxes and prevent the double taxation of dividends; that the market capitalization of income trusts in Canada will exceed the market capitalization of the TSX/S&P 300 index.

Wealth and freedom can, and should, be yours. You have the right to acquire it. The family that is jet setting around the world, teaching their children about art in Paris and about science on the Amazon, eating out whenever they want to, cruising on yachts, hot-air ballooning over wine country, relaxing on tropical beaches, has no more right to all of that than you. We believe you can have, should have, and will have all your dreams. All of them.

Only 4% will actually achieve freedom of choice or financial freedom, and a mere one per cent actually achieve his dream for true wealth. This means that only 5% of people are able to provide for themselves when they retire. Are you currently positioned to become one of the 5%?

Statistic further shows that of this one per cent, 74% made their money from running their own business, 10% are professionals, 10% are CEOs of large companies, and the rest achieve wealth from other sources.

The main reason people struggle financially is because they have spent years in school but learned nothing about money. The result is that people learn to work for money but never learn to have money work for them. The rich don't work for money; they have their money work for them.

This can be achieved through passive income.

We at investingforincome.com are focusing on passive income using Canadian Income Trusts. We think it's the easiest way to achieve passive income. One can start with as little as $1,000. We can all be little Warren Buffets.

You see before World War II investors invested in stocks for income. But after the war this started to change slowly. By the end of the millennium the stock market became a huge capital gains generating machine with little or no income.

We speculate that the trend to capital gains was due to favorable taxation of capital gains over dividends. However, we believe we are on a long term secular trend where we will see the stock market convert from a capital gains machine to an income generating machine. This has all ready started with the BUSH tax plan that tried to make dividends tax-free. This is only the beginning. The USA will lead the way for all nations. I bet you that in 20 years from now most stock market returns will be from dividends/income and not capital gains. Buy the time the experts figure this out and tell you they will have deprived you of billions of dollars of income.

We strongly recommend that on a long-term perspective you get out of stocks and mutual funds that do not pay income.

We have given you a lot to think about. Remember, we have nothing to sell you here. Instead of listening to the media and all the experts just think about this on your own. Your gut will tell you that we are right.

Remember, as Warren Buffet said if you are a poker game and you cannot figure out who is the patsy then guess what...your the patsy.