Lower coal prices and higher costs may force Fording Canadian Coal Trust to cut distributions in 2006, warns Patrick McKeough, but the publisher of The Successful Investor newsletter is still rating the units a "buy" for aggressive investors.
Mr. McKeough says Fording stands out among trusts for a couple of reasons:
It came into existence as part of the planned break-up in 2001 of Canadian Pacific rather than as a new issue from a broker.
It has been among the top performing trusts in the history of this investment vehicle. Investors who bought into the newly formed trust in February, 2003, have seen a total return of about 415 per cent.
Earlier this year, Fording completed a reorganization that let it pass on more of its cash flow to unitholders and quarterly distributions jumped, Mr. McKeough says.
Also, fears of possible coal shortages prompted many Fording customers to stockpile more coal than they needed. These customers now want Fording to delay shipments while they use their inventory.
Mr. McKeough says higher transportation costs, the stronger Canadian dollar and poor weather have also provided temporary setbacks.
But while Fording may need to cut distributions, he says the trust has room to cut while keeping its yield in line with or above yields on other resource-based trusts.
Fording units closed at $45.87 yesterday, up 28 cents on the TSX.
© The Globe and Mail
Only GlobeinvestorGOLD combines the strength of powerful investing tools with the insight of The Globe and Mail.
Discover a wealth of investment information and and exclusive features.
