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Brace yourself, the income trust strategy onslaught is here.
After Finance Minister Ralph Goodale announced Wednesday that Ottawa will not be taxing income trusts, and will be lowering taxes on dividends, a host of analysts have issued research reports outlining how Canadians can benefit from the decision.
Conscius Capital Partners analyst Kona Shio has come up with a play on lower dividend taxation focusing on low-yield stocks.
So far, almost all trusts have risen after Ottawa's decision. The capped income trust subindex advanced 0.27 per cent yesterday. Income trusts will be added to the S&P/TSX composite index on Dec. 16. High-dividend yield stocks have also done well.
However, Mr. Shio also believes the tax changes will make for a third possible play, this one on low-payout stocks. "The government just provided activist investors with more ammunition," he said. "They can now push for an income trust conversion or dividend hikes, the latter of which will be simpler to implement for companies."
Dividend hikes will likely take precedence on investors' wish list, Mr. Shio said, so companies with low-payout ratios could turn up on activists' bull's eye, particularly telecom stocks.
"Further look for companies with low-payout ratios to face increased pressure from investors to hike dividends given the incremental benefit now embedded in a dividend increase," Mr. Shio said. Among the companies that could face this kind of investor pressure are Transcontinental Inc., Rogers Communications Inc., Shaw Communications Inc., Astral Media Inc. and Corus Entertainment Inc., he added.
© The Globe and Mail
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