Pulp industry

My last three investments this year have been Canadian income trusts that I picked up in November. Indeed these have been my only purchases this year. These trusts act like US REITs, in that they do not pay taxes to the Canadian government. On Haloween day, the Canadian government announced that they were proposing to collect corporate tax from the trusts. The ensuing meltdown left many trusts down 30 or 40 percent from their year ago levels.

I picked up units of SFK Pulp and Canfor Pulp funds. As their name indicates they produce pulp, which is a the raw material for paper. Business had been very bad toward the end of 2005, and had resulted in SFK Pulp suspending distributions. In the past year, roughly one sixth of Canadian pulp production has been eliminated. Prices have taken a decided turn for the better, with SFK Pulp and Canfor Pulp reinstating or raising their distributions. Canfor Pulp (CAD$12.60) pays out CAD$.12 monthly, while SFK Pulp (CAD$4.13) pays CAD$.03 monthly. US residents are subject to a 15% witholding on distributions. Both of these are available on the pink sheets under symbols cfxuf and sfkuf and as such do not need to file reports with the SEC. They do file in Canada, and their filings are accessible at www.sedar.com.

Since my initial purchases, I found a pretty good writeup from the CIBC brokerage that might be interesting.

The other purchase was Pengrowth (PGH on the NYSE), which is an oil and gas developer. This is more of a short term holding, and I already flipped it once. It pays out 16% or so on a trailing basis, although how much of it is sustainable depends on energy prices. If it goes up, I'll probably be inclined to sell, otherwise I'll hold and collect the (possibly lower) distribution. Other ideas along similar lines are PWE, FDG, and coswf.