I see them there, staring back at me with their juicy dividend payments. Some pay a hearty 6%, while others pay in the incredible 12% range. More yield then you can shake a stick at. The banks can take their pathetic 1% interest rates and shove it …. in someone else’s face. It sounds to good to be true but they are indeed proven to payout those amazing dividend yields.
But like all dividend payments from income trusts and common shares, they are never fully guaranteed. They can be cut or even eliminated at any moment and the share price will be reduced at an alarming rate along with it. Income trust’s dividends don’t seem very stable at all. They fluctuate more then a dividend paying common stock. If it’s a slow quarter or year, the dividend will be most likely cut. And thanks to new Canadian laws that were ousted in the U.S and Australia, the Government has their fat claws ready to take advantage of the new taxation on income trusts in 2011. I’ll make this simple and a less painful explanation. The new tax rules will force income trusts to form a corporation and greatly hinder the ability to maintain their current dividend because of the increased taxes that used to be paid by the dividend earners. So now Steve Harper and the other oxygen converters can buy the $100 bottles of orange juice AND eat the $30 beer nuts in the fridges of their hotel room and not feel as bad about it. The conservatives might even feel bad they lied to us about not taxing income funds in their election promise, but I highly doubt it
Some trusts have already converted, but I’m still skeptical of the dividends and how long they will be maintained. I will be watching income trusts and their plans on converting to corporations well into 2011 and will be weighing my options. I might miss out on some nice yields, but I’d rather take the time and invest in something rock solid once, rather then buying and selling like a mad man investing in non paying dividend stocks.
Do any of my dozen or so readers invest in income trusts? What are your thoughts on the 2011 deadline and it’s effects on dividend payouts?