There is plenty of info on the Rogers website about the company, the financials, the analysts covering it and the history of the company. Over the last couple of years I have come to find that the people in investor relations for these trusts are glad to talk to you and call you back and that the analysts following them are willing to reply to email (I would not try to call an analyst).
In looking at the chart for Rogers Sugar versus the iPath Sugar ETN (SGG) it is not clear to me that Rogers Sugar is a proxy for the commodity. At first glance yes but if you look a little closer there are some clear divergences. The chart only goes back 13 months which is apparently when SGG started trading.
For the last few months the correlation seems very tight but I am not sure it makes sense to trust that because everything except treasuries is up a lot in the last few months and I am not sure if what we are seeing is is true fundamental connection or a rising tide.In skimming the the financials, the company appears to have have decent cash flow, a little bit of cash on hand, not much debt and demand for its product. The fund pays out 3.8 cents a month putting the yield at 10.75%.
There are bunch of different types of trusts like this in Canada covering things like hydroelectricity, timber, geothermal, cocoa and probably a couple I'm forgetting. I first stumbled across the concept a couple of years ago and have been fascinated ever since but never bought one. That is probably a good things as all of the ones I looked at got pasted in the bear market but have generally participated in the snap back, even the ones that dropped 80%. Despite the bloodshed price wise it appears that many of them maintained their dividends throughout but if I have that wrong, hopefully someone will be kind enough to speak up.
I have not ruled out owning one of these at some point but I have drawn a couple of conclusions about them collectively. They are very cyclical, at least they trade like they are. It would probably make sense for one the trusts to be the first to go, or close to it, upon starting to take defensive portfolio action. They appear, as businesses, to run smoothly most of the time but only be a couple of slow quarters away from struggling. The massive payouts would seem to not leave a lot of room for error or economic slowdowns.
Similar to port and related stocks talked about yesterday, the trusts are not islands unto themselves merrily paying their fat dividends ever after. That does not mean they should be avoided, just realized for what they are which is volatile high yielders that are cyclical.
8 comments:
Before you get too involved with agricultural commodities, make sure you understand the underlying USDA price support programs and what would happen in the event of major reform. The political atmosphere is ripe for change. Further, in the case of sugar and alcohol, there are significant tarriff (sp?) keeping much cheaper offshore products out of the country. That may change too.
In summary, things are not always as they seem.
Hey Roger: I left the RSI.UN comment yesterday. Two things. One all trusts got pasted on the govt. trust ruling which forces a lot of conversions in 2011. Most recovered from that decision. Some have converted back to stocks all ready. Some do not have to convert. Secondly during the drop of 2008 some cut or eliminated distributions, some did not. Poorly run trusts went under. They can pay so much because they flow the taxes to the trust owner. And like in life if it sounds too good to be true... If a trust is paying well above it's peers you might want to figure out why. Find a trust with a 40 to 80% payout.
Rogers Sugar is stuck with a domestic market. They do take up most of the grocery store sugar isle in Canada. They do refine sugar domestically. And for us Canucks it doesn't expose us to currency risk. However I agree the SGG or DBA is a purer play. But they don't pay 10.8% yield.
cheers
dnf
i seem to recall that some income vehicles are exempt from the new taxation, something about being structured as stapled units, if I have the jargon right. is this true?
2011 is the date that most of these trusts have to convert from a very efficient tax vehicle (they pay basically no tax and it flows through to the trust holder). This is how these companies can get 90% payouts (which is very high and risky). REITS are exempt from this and maybe a few others (not sure but have heard), so they will continue as per normal. Cdn REITS have fared very well (those with no US interests).
Some have converted already and are paying out very close to what they paid. Example is TSE:AFN They converted about a month ago. Still paying around 6%. The whole thing is better for the Cdn taxpayer as these will now be dividends and not counted as interest (we get a break on dividends). I don't have the jargon down so you are stuck with this basic version.
I would disagree with your comment that they should be sold first on a downturn. There are some very conservative trust out there. Thankfully a lot of garbage trusts have gone way of the dodo.
I am Yamnuska on twitter btw.
dnf
Interesting insights that illustrate why volatility isn't the best definition of risk.
Hey Roger: Long time reader, first time poster. Great blog you have here.
I was wondering if you had any thoughts about the bearish article Barron's ran over the weekend about the timber stocks. I know you've disclosed owning Plum Creek for clients in the past (maybe still do?). I was curious to get your take on the article.
I don't have any exposure to timberland but have considered PCL a few times in the past. If the writer's thesis is right perhaps I will get that opportunity at much lower prices in the future?
- Ben
Barron's certainly seems to be picking on PCL this summer. I have know the stock since it was an MLP in 1990. It has endured concerns along these lines before. I'm sorry I have no idea what is already priced in but the idea of endowments being forced sellers of their holdings (although different) could cause a perception problem.
Roger, do you have specific place you get your correlations from, or do you just eyeball charts?
I've been looking for a good web-based correlation tool.
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