Grab This Income-Bearing Asset While You Can

Juicy Dividends From the Great White North

I know how “coupon queens” must feel after a successful trip to the supermarket.

I’m sure you’ve seen those shows or read the stories—the women who have mastered the art of “couponing.” They head off the Piggly Wiggly with a well-organized sheaf of coupons, and they buy like $500 worth of food and cleaning products, and after all the coupons are counted, the store owes them money!

I’ve always been impressed by those women. That’s an art form. An Olympic sport.

I don’t have the stamina—or the shelf space—for that kind of commitment. But I do have the patience for another money-making venture that leads to owning things for free.

In this case, it’s not coupons… it’s dividends.

More directly, it’s the power of dividends from something called a Canadian Income Trust.

I have no idea how many Americans know these trusts exist up in the Great White North. I learned about them back during the aftereffects of the housing crisis and the Great Recession it spawned.

Clearly, the recession had caused vast job losses in the U.S., Canada, Europe, and elsewhere. But I suspected that the rebound wasn’t going to return the world for a sense of normalcy. I suspected that returning workers would not find the same caliber of jobs—and at the same pay scale—they’d had before the crisis hit.

Increasing use of technology to replace workers would see to that (which is exactly what happened).

So, I figured we’d see a lot of financial success among companies that specialize in “everyday low prices,” basic apparel, basic food, fast-food, etc.

And I went hunting for those companies.

Somehow, I ended up on a website from some Canadian investment bank, explaining the virtues of a Canadian Income Trust. Best way to describe them is to imagine a real estate investment trust (a REIT) having a love-child with a Master Limited Partnership (MLP).

In short, at least 80% of the trust’s pre-tax income must go to shareholders in the form of a distribution. In many cases, those distributions are monthly, providing a great way for income investors to generate a more-consistent stream of income across the year.

These trusts have become hugely popular in Canada. Most are focused on energy assets, real estate, and resources like mining. But a few cater to consumer needs, and that’s exactly what I wanted.

The trust I found, and which I ultimately invested in, centers on the need for people to fill their bellies a few times a day.

The name of the business isn’t really the reason for today’s dispatch.

Income is the reason.

See, I bought that trust back in spring of 2010, when it was trading for about $15.00 (Canadian) or so, which at the time would have be about USD$14.50 at that time.

I still own those share today. And over the last 13-ish years, I’ve collected more than USD$21 per share in dividends.

My dividends have paid me nearly 150% of my original cost.

Or, said another way, because of the dividends I’ve received, I’ve recouped my entire investment, plus another $6.84 per share in cash. Oh, and the share price has more than doubled, underscoring my contention (spelled out in a dispatch earlier this week), that consistently rising dividends leads to persistently rising share price.

That’s the power of owning a high-quality company paying high-quality dividends tied to goods and services that consumers must have, or willingly pay for because of their vice-like nature.

I’ve had a number of companies like this over the decades I’ve been an investor—companies that have paid out more in dividends than I paid to originally buy the shares. In almost all cases, those companies were acquired by larger businesses, precisely because those rich dividend payments were an indication that the underlying business was robust. If you can’t beat ‘em… gobble ‘em up in an acquisition.

Truthfully, I am hoping my Canadian trust does not get gobbled up. The income is just too good. Based on the annual dividend payments today, my yield on investment is north of 13.3% per year. (And even if you were to buy it today, you’d be collecting north of 6%—a nice, plump yield in this environment.)

Like I said at the outset, I know how those Coupon Queens feel getting something for free, plus collecting a bunch of free money as well. Or maybe it’s like robbing a bank—with the bank’s permission.

Either way, we’re living in an income-stock era right now. So, grab’em while you can.