Income trusts are expected to surge today after Ottawa decided not to hit the sector with a new tax regime, but instead level the playing field by cutting taxes on corporate dividends.
The announcement from Finance Minister Ralph Goodale came after the close of trading yesterday and two months ahead of expectations, and is likely to hoist high-dividend-paying stocks as well as the battered trust sector.
"If I was a betting man, I definitely would take that bet," said Ric Palombi, a portfolio manager at McLean & Partners in Calgary. "The whole sector will see between a 5- and 10-per-cent lift."
The S&P/TSX income trust index has dropped 6.7 per cent since Mr. Goodale stunned investors in September with word that the Canada Revenue Agency would no longer provide advance tax rulings to companies considering conversion.
The income trust index slumped 12 per cent in October.
"Investors will likely breathe a sigh of relief, which should go some way towards restoring the near $20-billion of market cap that has been eliminated over the past couple of months on policy concerns," said Myles Zyblock, RBC Dominion's chief institutional strategist.
A "relatively small" amount of the money that might have otherwise found its way into the trust sector will likely slide into dividend-paying stocks, Mr. Zyblock said.
Units of some beaten-up trusts moved higher in advance of Mr. Goodale's announcement, Mr. Palombi said.
Yellow Pages Income Fund soared 6.6 per cent yesterday, and Mr. Palombi expects it could rise another 6 per cent tomorrow.
BCE Inc., one of the companies with the largest dividend yields on the benchmark index, jumped 4.9 per cent, marking its biggest single-day gain in four years. (BCE controls Bell Globemedia, the owner of The Globe and Mail and CTV. )
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