Top TFSA Investments: Canfor Pulp Income Fund (CFX.UN)

Canfor Pulp Income Fund is one of the strongest forestry companies in Canada with a great balance sheet to make it through this recession and further potential future bumps in the road. This fund was recommended previously on this blog in the article Income Trust Picks for my TFSA
Canfor Pulp Income Fund (TSE:CFX.UN) is involved in the supply of pulp and paper products with operations based in the central interior of British Columbia. The fund was created to acquire and hold a 49.8% in Canfor Pulp Limited Partnership (CPLP). The fund owns and operates 2 Northern-Bleached Softwood Kraft (NBSK) pulp mills and 1 NBSK pulp and paper mill. The mills have the capacity to produce over 1 million tonnes of NBSK pulp and 140,000 tons of kraft paper.

The forestry sector in Canada has been in what some might call a depression for well over 5 years and many smaller outfits have fallen by the way side. The real bread and butter have always been the US Housing market, but NAFTA Softwood Lumber issues negatively affected most Canadian Forestry companies before the World Recession began. As a result, forestry sector stocks such as Cascdes Inc (TSE:CAS), Domtar Canada Paper Inc (TSE:UFX), Catalyst Paper Corp (TSE:CTL), Fortress Paper Limited (TSE:FTP), SFK Pulp Fund (TSE:SFK.UN) have been pounded over and over. Only the strongest have survived and of those Canfor is one of the best. With lumber prices on the rise again and the rumbling of logging trucks heard again throughout BC Canfor looks like a real winner.

Canfor (CFX.UN-T) is currently rated by Thompson Reuters as 8 out of 10 while the Forestry & Paper Sector as a whole is ranked at 6.2/10. There are 9 analysts listed as publicly following the fund and of those 1 ranks it a Strong Buy, 5 a Buy, 2 a Hold, and 1 a Reduce. The current price is around $5.69 with a 52 week high of $6 and a 52 week low of $1.30. Analyst estimates at this point place the fund in a range between $3.25 and $8 with a mean of $5.19. The current dividend is lacklustre at only 2.1%; however, when the company gets back to production there will be a huge spike.

As I made acquisitions in my TFSA I ran out of room for this fund since TFSAs this year only allowed a max of $5,000. Due to the extent of dividend payments I have received to this point in my TFSA I am now ready to add another acquisition to the mix. If the recession does end the US then this fund should do very well. Looking at a 5 year Chart you can see that the fund reached a maximum price around $16. Further, looking at the chart I can see the long term down trend is about to be broken.

For more TFSA picks take a look at the following articles:

• Income Trust Pick: A&W Revenue Income Fund (TSE:AW.UN-T)
• Income Trust Pick: The Brick Income Fund (TSE:BRK.UN)
• Black Gold Income Trust (TSE:WTE.UN)

Westshore Terminals Income Fund (WTE.UN) Profits to Soar over the next 3 years

Westshore Terminals Income Fund (TSE:WTE.UN) is the premier shipping terminal for metallurgical coal for the North American Market to the Pacific Rim. An announcement by Western Coal Corp. (TSE:WTN), a major coal mining company, on Tuesday will turn into a windfall bonus for shipments from the Roberts Bank Coal Terminal. Westshore Terminals Income Fund earns revenue from volume of shipments so the announcement of a major expansion by one of the major producers in North America is a big deal.

Western Coal Corp. (WTN.TO) announced Tuesday it is “aggressively” seeking to expand capacity to 10 million tonnes a year by 2013. According to the Globe and Mail article Western Coal keen to bulk up the company is selling off non-core assets while expanding coal production through acquisitions.

 Although the above statement sounds like a wash, selling one asset while buying another, it’s not. John Byrne, chairman of Western Coal Corp., stated that there are buying opportunities in British Columbia and West Virginia. Due to the large barriers to enter the coal mining industry Western Coal should be able to pick up some new mines with the $60 million the company raised with a bought deal in August and get them operational.

 Currently, Western Coal is operating just above 50 percent capacity extracting 7 million tonnes of metallurgical coal annually. Last November as coal prices plunged, Western Coal Corp slashed production, cut jobs and expenses at its operations.

   The company will now become a pure coal play and plans to export much of the coal to China, India, and others. According to Mr. Hogg, Western Coal CEO, “the company is now ramping up production as demand returns, particularly in countries such as China and India.”

 Much of the increased production will occur by expanding British Columbian operations including Brule Mine, Wolverine mine, and Willow Creek Mine.  This will have a significant impact on the shipments through Westshore Terminals Port since the majority of coal exported from North America makes its way through this terminal. It’s a good thing Westshore Terminals has been adding capacity and improving efficiency through new equipment and systems. Look for an upcoming announcement about the benefits of Western Coals expansion in Westshore Terminals Income Fund third quarter discussion in the coming months.

  It won’t be long before the market puts two and two together to figure out the positive impact this will have on Westshore Terminals. This is a great income trust to hold in a TFSA or RRSP so if you are investing in Canada as a Canadian Citizen makes sure you take advantage of your tax sheltering accounts. I am buying more WTE.UN to hold in my RRSP now because the stock has pulled back over the past 2 weeks so the entrance price is looking very nice. Even if the market pulls before the end of this year this looks like a great long term play.

 For previous articles about Westshore Terminals Income Fund take a look at the following:

• Black Gold Income Trust 
• Income Trust Picks for my TFSA

Black Gold Income Trust

Westshore Terminals Income Fund (WTE.UN)
I have been following Westshore Terminals Income Fund for more than a year now and even recommended it in a previous article on this blog: Income Trust Picks for my TFSA.

The fund is based out of my home town Delta, BC and it has a very real and easy to understand business. Westshore operates a coal-storage and loading facility at Roberts Banks, British Columbia. It is an essential link in the coal chain between mines, rail, shipping, and the end user. Shipments are regular and go to around 24 counties and bring in $2 billion or more of wealth a year to Canada.

Currently and over the past couple of years Westshore Terminals has been upgrading its coal handling capacity and improving efficiency in handling the coal from the railcars to storage and onto ships. Westshore is now the leading export coal facility in North America. Coal exported through the terminal is mainly metallurgical coal that is used in making steel; it’s no wonder that China, one of the largest Steel makers, is a major customer.

One of the nice things about this company is the stability of cash flows leading to stable quarterly dividend payments. This is due to the fact that the fund derives its income from the volume of coal that passes through the port, not the price of coal and there are many long term contracts that have been signed with some of the largest coal miners in Canada. For example, Westshore’s major customer is Elk Valley Coal which is the second largest coal exporter of metallurgical coal in the world and is increasing mine capacity by 3 million tonnes to 28 million tonnes within a few years. Another interesting note is that coal shipments from Montana and Wyoming in the United States are also being railed 2000 kilometres to access Westshores Terminal.

Sounds like a great story, but what are analysts saying?

Looking at a consolidation of all known analysts that are currently following this stock, Westshore Terminals has received a 10/10 for the past month. I do like to use Thomson Reuters for this type of information since they consolidate all analysts’ opinions for a stock that follow the stock. The 10/10 rating is based on a collective analysis of 5 factors: Earnings, Fundamentals, Relative Valuation, Risk, and Price Momentum. The average for the Industrial Transport Sector is currently 8.5.

The current price of Westshore is around $13.55. The 52 week high is $16.50 and 52 week low is $7.02. The market cap is around $1 Billion and the current dividend yield is around 11.6% with quarterly distributions. Of the 6 analysts that follow the stock, the 12 month Price target ranges from a high of $15 to a low of $12.

I believe this type of investment is very well suited for a TFSA or an RRSP account due to the new tax rules coming in 2010 that will affect distributions. These new tax laws will only make Income Trusts that much more suited for tax sheltered accounts.

This is the most recent chart of WTE.UN from Google Finance.  As you can see the uptrend has been sustained for the past 6 months and WTE.UN is now pulling away from the trend line.  This may result in a steeper uptrend to into the future, but I think WTE.UN will likely pull back to the trend line in the coming weeks.

There is no time like the present to buy this for the long term.

Income Trust Pick: A&W Revenue Income Fund (Public, TSE:AW.UN)

Main competitors: McDonald's Corporation (Public, NYSE:MCD), Burger King Holdings (Public, NYSE:BKC), Wendy's Arby's Group Inc. (Public, NYSE:WEN), Jack in the Box Inc. (Public, NASDAQ:JACK),  Yum! Brands, Inc. (Public, NYSE:YUM).

A&W Revenue Income Fund (AW.UN) is one of my top picks for a TFSA or RRSP. The fund is currently trading around $13.75 and the most recent monthly distribution was announced August 5, 2009 @ $0.106 per share which works out to a yield of 9.25% annual. The dividend distribution is very good, especially if you hold this investment in an account that benefits from no taxes; however, this is not the main reason why I like this income trust so much.

Over the past month I have done a bunch of research into AW.UN and the morning of Monday August 24, 2009 I pulled the trigger and bough some in my TFSA account. The following details are what I based my decision to purchase this stock on:

1. I have reviewed the past few weeks of analysts’ reports prepared by Thomson Reuters. They rank stocks on a scale of 1 to 10 and AW.UN-T has not ranked below a 9/10 over the past year. It is currently ranked a 9 while the Travel & Leisure Sector average is a 6.8.

2. Thomson Reuters lists the trust under TRAVEL & LEISURE / TRAVEL & LEISURE / RESTAURANTS & BARS and I am not currently exposed to this sector. This has been one of the harder hit sectors during the recession since people have gone out less often and traveled less often.

3. The income trust made a new 6 month high in the beginning of August and the long term up trend has continued since October of last year. This has been a strong investment throughout the recession and the next point 4 has a lot to do with that.

4. A&W Restaurants is the fastest growing Fast Food Chain in Canada Today. Sure they are growing and they have great brand recognition with the Baby Boomers but do you think this growth will continue or their distributions continue? I would have to say yes, and yes; now let me explain:

Will A&W restaurants continue to grow in Canada?

Yes they will and I am sure you have not heard this reason before—over the past year A&W has been aggressively poaching experienced real estate professionals. They have hired a number of professionals specifically for the purposes of finding new properties to lease for their franchises. Each professional was given a Province and then they were sent travelling all over Canada looking for places to expand. How do I know this? I visited the Sauder School of Business career website over the past year on a number of occasions to see what kind of positions are out there for professionals. I remember reading the job descriptions and they required a significant amount of experience and willingness to travel within the designated areas.

Will A&W restaurants dividends continue to grow?

Yes they will because the recession has influenced peoples spending habits. During the recession more people went to A&W restaurants instead of middle of the road restaurants like Cactus Club, White Spot, Boston Pizza, the Keg, etc because they wanted to save money. The only restaurant that has seen a larger increase is McDonalds. The mentality of the North American consumer has changed during this recession from one of shopaholic living on credit to credit conscious savers. We are now more like our Grand Parents ready and willing to save for emergencies.

5. The Price to Earnings ratio of A&W Royalties Income Fund is currently only 9.91. I think anything in the single digits presents lots of upside potential.

As a result of these factors I bought A&W Royalties Income Fund and I plan to hold this in my TFSA for the long term.

I still am bearish on the overall outlook of the TSX and S&P indices, believing that a correction will take place in September; however, I do not think we will retest the lows achieved a few months back anymore, even if the commercial real estate shock occurs in the United States. Even if another correction occurred, this stock would just become a better buy for the long haul.

Income Trust Pick: The Brick Income Fund (BRK.UN)

Income Trust Pick: The Brick Income Fund (BRK.UN)

The Brick Income Fund (BRK.UN) is in the process of making a large scale recovery. I recommended this stock a couple of weeks ago as a potential candidate for a TFSA account. The stock is up only slightly; however, I am becoming more and more bullish on this stock for the long term.

In Canada where the Brick Income Fund operates under logos such as The Brick, and United Furniture Warehouse, sales have been slow; although, this can been seen as partially the result of a slow housing market. When housing sales decline I would assume in all probability so do furniture and appliance sales. If you have read any of the new housing sales reports in Canada then you should be very familiar with the fact that over the past month housing sales have been the highest every on record.

When I think of people moving to a new home I am always rethink my last move when I asked the moving guys, “do you want my old couch and TV.” Of course they responded yes and then went on to say that during moving season they are given so much furniture because people like to move into a new place with new things. I believe this to be the norm so with the latest housing sales data I suspect the Brick Income Fund will be flush with cash by the fall and able to weather a further decline in sales if this recession is not over and if the recession is over then distributions will definitely be on the mend.

For more insight into the current situation at The Brick Income Fund refer to the Globe and Mail news article dated August 14th, 2009 titled ‘The Brick Putting its House in Order’ The article highlights many of the blunders that have led the company towards bankruptcy over the past year.

According to the article, some of these blunders were ramifications due to the company’s poor response to a liquidity squeeze, inventory shortages, and poor demand forecasts. These mistakes included cost cutting through layoffs of sales staff and slashing ad spending, which further decimated sales revenue.

The article then goes on to highlight some of the changes being made by the newly appointed CEO-Bill Gregson. Mr. Gregson has a track record for saving retail chains as the previous CEO of Forzani Group (Largest National Sporting Goods Retailer in Canada). With a $25 million life line provided by The Brick Income Fund's largest shareholder and a $130 million loan from GE Capital, the new CEO has some room to manoeuvre. Now that the liquidity crisis has been abated the plan is to replenish inventory in stores, beef-up the sales force, and bombard the public with advertising.

If you are still looking for opportunities for your TFSA definitely take a closer look at BRK.UN

Income Trust Picks for my TFSA

If you read the last post than you should know why I believe Income Trusts are the best investments to put into your TFSA currently. After some intensive research I have come up with a list that I believe would be great additions. The only issue I am currently having is that I believe the TSX and all Canadian Stocks are due for a serious correction so I will need to figure out a time line for before I make my entrance.
My search for Income Trusts to add to my TFSA led me to 6 that I will now list in order of my top to bottom choices: aw.un, wte.un, liq.un, cfx.un, ylo.un, brk.un .
AW.UN (A & W Revenue Royalties Income Fund)
I came across this one by chance, but found it to be a great investment opportunity. The reasons why I like this one are as follows: Thompson Reuters gave the fund an overall ranking of 9/10 in their latest analyst report, the Dividend yield is currently 9.62%, people buy more burgers during a recession, and after the recession people will be more conscious of their spending and continue to eat relatively cheap food. My only real concern at this point is that the current price at $13.72 is less than $1 from the 52 week high.
WTE.UN (Westshore Terminals Income Fund)
I have been looking at this Income Trust for over 6 months now and am very interested in owning it in my TFSA. The income stream from this fund is very easy to understand, which is a huge plus. The funds income comes from coal shipping. They are paid based on volume so the price of coal is not a huge issue for the fund providing less volatility than some of the coal producers. The dividend yield is strong at 8.74% currently and Thompson Reuters gave them a 10/10 on their latest analyst report. This one is still way off the 52 week high and the income should be stable for the next 2 quarters according to their latest press releases.
LIQ.UN (Liquor Stores Income Fund)
I have also been following this one for a while. The fund’s income stream comes from a number of liquor stores throughout Western Canada and there is growth potential for new additions here. The dividend is a healthy 12.79% and Thompson Reuters has ranked them at an 8/10 for some time now. This one is also still over $2 from the 52 week high.
CFX.UN (Canfor Pulp Income Fund)
Canfor is one of the strongest forestry companies around. The forestry sector has been in a major downturn for well over 5 years so the stocks have been demolished. Canfor has the benefit of being well capitalized compared to competitors and should make it though this recession even if it turns into a depression. The dividend yield is only 3.7%; however, there is so much upside potential in the distributions and in the stock that this one needs to be considered. Thompson Reuters also rated this one an 8/10.
YLO.UN (Yellow Pages Income Fund)
I have owned this before and would like to own it again. Many people feel the phone book business is dead but this company is so much more. Their online phone directory is used by millions of people everyday including myself and they are well diversified into many other online advertising types. They cut their dividend a couple of quarters ago yet the yield is still around 16%. It is near its 52 week low so I am liking this income trust again. Thompson Reuters gave them a 9/10 recently and the P/E is so low at 4.5. My only real concern is that they plan to convert back to common stock in 2010.
BRK.UN (The Brick Group Income Fund)
This one I am on the fence on. The recession has not been nice to furniture stores and that’s all the brick does. They have many different brands including ‘the Brick’, and ‘United Furniture Warehouse’. There is a ridiculous amount of upside here if the recession ends this year; however, if things continue like I think they might, this one may continue as a dog. Thompson Reuters gave them a 5/10 recently and there are currently no distributions. This one I would not risk in my TFSA but might buy in my main account.
The thing to remember about buying any investments is to think about it with reference to your entire portfolio. We don’t want to just gamble away our hard earned cash. I will discuss in my next post how to use position sizing and stops to distribute your portfolio affectively and discuss how I will do this with my TFSA positions.

TFSA - Tax Free Savings Account - Best TFSA Investments

I have thought long and hard about the best investments for a TFSA account. There are so many potential investments and strategies that can be employed; however, I have concluded that my TFSA will be used for investments that are relatively low risk and tax inefficient to make the most of the TFSA tax implications. I will provide a link to a Government of Canada Website with information pertaining to TFSAs and then describe what I consider to be the best investments for your TFSAs.


The TFSA became active during the 2009 tax year in Canada. The Government of Canada decided that it was in the best interest of the Country to encourage more savings. The lack of savings became a problem over the past decade. It helped spur the last major bull market on the TSX; however, this was unsustainable as has been displayed by the recession that followed.


For more information about the new Tax Free Savings Account (TFSA) please view the government website at www.tfsa.gc.ca/

Now, let me discuss what I think the best investments for your TFSAs are.
In my opinion, your TFSA should be used for an investment instrument that is relatively safe since you cannot write off potential tax losses against your investment income; and should be an investment that is taxed more heavily by the government. There is one investment that comes to mind immediately and after much research I do believe it is the BEST investment for TFSAs - Income Trusts.

Income Trusts have become an eye sore for many investors since the government announced the increased taxation and then the down turn that followed. Here is why I think Income Trusts are the best investments for the TFSA: Firstly, even after all the reductions in distributions due to lower profits during the recession, Income Trust on average are currently yielding around 9% annually in income distributions; Secondly, since the new tax implications remove a sizable portion of the income gained when held outside of an RRSP or TFSA, these are very inefficient investments for the majority of the money in the market place; thirdly, if the government ever decided they were too harsh by changing the taxation on these investments they would increase in value dramatically; forth, Income Trusts also increase in value with regular stocks.

Market Valuation of Income Trusts

The market valuation of Income Trusts will continue to be driven by the big money; this means the RRSP and TFSA money that does not need to consider the high tax implications does not determine the market price for these investments. As a result, the market will continue to demand very high pre-tax income distributions.

Increasing Distributions

With current distributions cut by most income trusts at least by half and share prices declining to the point that annual distributions are still in the 9% range, there is a ton of upside in distributions and capital appreciation to maintain the same 9% range as distributions increase again. At pre-recession levels, where distributions will go back in the future, the pre-tax income at current prices represents returns around 25-35% Just in Income Distributions.

Increasing Share Prices

As the recession ends that share prices of income trusts will increase while distributions increase.

Personally, I will be using my TFSA to buy 3 income trust positions the week of August3-7th, 2009. Check back if you want to know exactly which investments I bought.