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What is a "Can?"
A "Can" is a Canadian Royalty Trust. A royalty trust is a company that has been granted tax-free status because the trust has agreed to pay a majority of its income (NOT PROFITS) to its "unit holders." The government then taxes the dividends that the individual unit holders earn.
Why buy a Can, anyway?
1. They pay awesome distributions; the best pay 15-18%.
2. Not all of the distributions (note that I did not call them "dividends") are taxable. A portion of the money that the Can pays the unitholder is "Return of Capital" or ROC. Return of Capital is what the government calls the allowance for the depletion of the resource. For example, let's say you invest in a coal mine. The mine has only so much coal in the ground before the vein of coal runs out. The distribution that the coal co. pays to the unitholder is perhaps 25% dividend (and thus taxable) and 75% ROC, and thus non-taxable! So, if you invest in some of the best cans, you'll earn 18% on your money, but only 4.5% is taxable! Nice, huh?
3. Another reason to invest in a Can is they pay monthly distributions. Let's say you invest in one paying 18%. That is a 1.5% distribution check each and every month. What's wrong with that?
4. Cans generally provide very stable income during all market conditions. Thus, in a down market (like March 2004-Nov 2004), while the sharks are devouring the small investor in a choppy market, the Cans were sending their unitholders a check every month.
5. Over the last 5 years, the average return to the investor in the energy royalty trusts have averaged 27% per year, each and every year. 27% represents distribution plus appreciation of the unit price.
6. Unit prices tend to be very stable. On a good day, the unit price will move up .10. Often the move may be just .03 up or down. A very, very bad day would see the unit price drop .20. (All these figures are in Canadian dollars). You can go to sleep at night and relax. You can walk away from your computer screen and not worry that the market collapsed on you. On the negative side, these are not growth plays. Don't expect your unit price to double in one month, one year, or even five years. It could happen, has happened, but it is not likely to happen.
Therefore, the Cans are a good place to lick your wounds and recoup your NYSE losses. A great place to park money for years, and earn a great return. The Cans are the place to be in a bear market. While others are on the sidelines, your money is earning a good return.
Until next time, good investing to you!
A "Can" is a Canadian Royalty Trust. A royalty trust is a company that has been granted tax-free status because the trust has agreed to pay a majority of its income (NOT PROFITS) to its "unit holders." The government then taxes the dividends that the individual unit holders earn.
Why buy a Can, anyway?
1. They pay awesome distributions; the best pay 15-18%.
2. Not all of the distributions (note that I did not call them "dividends") are taxable. A portion of the money that the Can pays the unitholder is "Return of Capital" or ROC. Return of Capital is what the government calls the allowance for the depletion of the resource. For example, let's say you invest in a coal mine. The mine has only so much coal in the ground before the vein of coal runs out. The distribution that the coal co. pays to the unitholder is perhaps 25% dividend (and thus taxable) and 75% ROC, and thus non-taxable! So, if you invest in some of the best cans, you'll earn 18% on your money, but only 4.5% is taxable! Nice, huh?
3. Another reason to invest in a Can is they pay monthly distributions. Let's say you invest in one paying 18%. That is a 1.5% distribution check each and every month. What's wrong with that?
4. Cans generally provide very stable income during all market conditions. Thus, in a down market (like March 2004-Nov 2004), while the sharks are devouring the small investor in a choppy market, the Cans were sending their unitholders a check every month.
5. Over the last 5 years, the average return to the investor in the energy royalty trusts have averaged 27% per year, each and every year. 27% represents distribution plus appreciation of the unit price.
6. Unit prices tend to be very stable. On a good day, the unit price will move up .10. Often the move may be just .03 up or down. A very, very bad day would see the unit price drop .20. (All these figures are in Canadian dollars). You can go to sleep at night and relax. You can walk away from your computer screen and not worry that the market collapsed on you. On the negative side, these are not growth plays. Don't expect your unit price to double in one month, one year, or even five years. It could happen, has happened, but it is not likely to happen.
Therefore, the Cans are a good place to lick your wounds and recoup your NYSE losses. A great place to park money for years, and earn a great return. The Cans are the place to be in a bear market. While others are on the sidelines, your money is earning a good return.
Until next time, good investing to you!
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