In This Issue

KEEP MORE OF YOUR MONEY

By Gordon Pape, Editor and Publisher

Now that the 2010 tax filing season is over, let’s take some time to discuss ways to keep more of your investment income this year. Our patchwork tax system offers all kinds of opportunities to reduce the government’s share of profits earned in non-registered accounts. But if you don’t structure your portfolio to take advantage of them, you’ll end up paying more than you need to. Here are some ideas for putting more money in your pocket.

Buy dividend-paying stocks. Although the value of the dividend tax credit has been shrinking, as I discussed in last week’s issue, dividends are still worth a lot more on an after-tax basis than comparable interest income. In fact, lower-income investors will pay little or no tax on dividend income. If your taxable income is $41,000 or less and you live in British Columbia, Alberta, Yukon, or Northwest Territories, your 2011 tax rate on eligible dividends will be zero according to Ernst & Young’s on-line tax calculator. In most other provinces, it will be less than 4%. The exceptions are Quebec (11.42%), Nova Scotia (9.39%), and P.E.I. (4.65%). By comparison, the marginal rate on the same amount of interest income will range from a low of 22% (Nunavut) to a high of 32.53% (Quebec).

The higher your tax bracket, the more you’ll pay on dividends but the rate will still be much less than on interest income. For example, an Ontario resident with taxable income of $75,000 will be taxed at a rate of 12.5% on dividends but will pay the government almost one-third of any interest income received (32.98%). For investors in the top bracket, the most you will pay on eligible dividends is 31.85% in Quebec followed by Nova Scotia at 30.7% and Ontario at 28.19%. The most dividend-friendly jurisdictions in the country are Alberta and Yukon, both with top rates of 17.72%. The tax on interest income ranges from 39% in Alberta to 48.22% in Quebec.

Dividend-paying stocks are also worth holding in a Tax-Free Savings Account. You won’t get the dividend tax credit but it won’t matter because all withdrawals are tax free.

Invest for capital gains under certain conditions. Our tax system has become somewhat schizophrenic when it comes to capital gains and dividends. Logic suggests that capital gains should be taxed at a lower rate since there is more risk involved. But that is not always the case and your priorities should be influenced by your income level and your place of residence.

To illustrate, an Alberta resident with taxable income of $150,000 will pay $190 in tax on $1,000 worth of realized capital gains. Tax on the same amount of dividend income will be $177.20. Why take the risk? In contrast, the same person in Ontario will pay almost five percentage points less on capital gains than on dividend income.

The lower your income, the less attractive capital gains become on an after-tax basis. A Saskatchewan resident earning $50,000 will pay the government $175 on every $1,000 worth of capital gains but only $107.70 on the same amount of dividend income.

No wonder investors are confused! Our system is completely lacking in consistency.

Buy REITs but carefully. Real estate investment trusts generally escaped the federal government’s new trust tax, although several of them had to reorganize their businesses to qualify for the exemption. As a result, some REITs continue to offer a tax-efficient place to invest although the benefits will vary from year to year and from REIT to REIT.

For example, shareholders in RioCan, the country’s largest REIT, received $1.38 per unit in distributions in 2010. Of that, about $0.80 was treated as tax-deferred return of capital and $0.06 as capital gain. The rest was taxable at the shareholder’s marginal rate. In contrast, Canadian REIT paid out $1.41 per unit last year of which all but about $0.23 was fully taxable. Obviously, RioCan was much the better choice for non-registered accounts.

It’s clear from this that all REITs are not equally tax effective. So if you are buying units in a non-registered account, do your homework first. Choosing the wrong REIT will only serve to make the tax collector happier.

Look at tax-advantaged mutual funds. The mutual fund industry has used some clever financial engineering to devise all sorts of ways to beat the tax folks and so far the Canada Revenue Agency has not challenged them. A little-known limited partnership called NexGen Financial has been the most aggressive in this regard, building its entire line-up so as to maximize tax efficiency.

Depending on your situation, you can invest in NexGen funds (including a bond fund) that pay only dividends, capital gains, tax-deferred return of capital (ROC), or that offer tax-efficient compound growth. In 2010, the annual cash distributions from dividend and ROC funds ranged from a low of 3% of net asset value to a high of 12.1%. The company was launched in 2006 and CEO Laurie Munro says that the tax objectives of each fund have been met every year.

However, you will need to choose carefully if you decide to invest with them. Some of the funds have sub-par performance records, proving it is never a good idea to buy a security strictly on the basis of tax considerations. The best bets include NexGen Global Value Fund, NexGen Balanced Growth Fund, and NexGen Canadian Large Cap Fund. Note that these funds require a minimum initial investment of $2,500.

Many of the mainstream mutual fund companies offer tax-efficient versions of their most popular funds. For example, Fidelity Investments has what they call T-SWP units (SWP stands for Systematic Withdrawal Plan). These enable investors to generate monthly cash flow, most of which is received as return of capital. That means no tax will be paid until the units are sold or the adjusted cost base (ACB) reaches zero. You’ll generally have to pay a little more for these units in the form of a higher management expense ratio but the tax savings may be worth it.

There are other ways to improve after-tax returns but these have the advantage of being available to almost all investors. If you paid too much on your investment income in 2010, take time now to review your portfolio with a view to making it more tax-effective. A year from now you’ll be happy you did.

 

Follow Gordon Pape’s latest updates on Twitter: http://twitter.com/GPUpdates

ANOTHER BERKSHIRE HATHAWAY?

TOP

We welcome back contributing editor Gavin Graham who has been on the hunt for a new stock to recommend. He has found a good one although at first glance you may think he’s talking about a different company. Gavin is the CEO of Graham Investment Strategy and a frequent guest on radio and television business shows. Here is his report.

Gavin Graham writes:

I have a new stock pick for you this week: Loews Corporation. Your first reaction may be: oh, that’s the big box home improvement chain that competes with Home Depot. Nope – that one is spelled Lowes.

The Loews I’m recommending is a U.S. conglomerate that is often described as another Berkshire Hathaway. It trades on the New York Stock Exchange under the one-letter symbol L.

Loews Corp. is managed and partially owned by the Tisch family. Initially, brothers Larry and Bob Tisch were in control but they died in 2003 and 2005 respectively. They were succeeded by Larry’s sons James and Andrew and Bob’s son Jonathan who continued to build the multi-billion dollar company that follows many of the same investment rules as Warren Buffett’s much better known Berkshire Hathaway.

Loews even invests in many of the same industries, with its largest divisions comprised of insurance (90%-owned CNA Financial) and pipelines (66%-owned Boardwalk Pipeline Partners). It also owns a 50.4% stake in deepwater driller Diamond Offshore Drilling and 100% of Loews Hotels and natural gas company HighMount Exploration & Production.

Loews describes itself as “a diversified holding company with the flexibility to pursue investments and acquisitions wherever we see opportunity.” It lists three primary means of achieving superior risk-adjusted returns for its shareholders:

1. Optimizing its subsidiaries’ operating performance and capital structure.

2. Making opportune investments and acquisitions.

3. Effectively managing and allocating holding company capital.

The second route, making opportune acquisitions, is identified by Loews as one of its most important means of adding value. The company says: “We rarely pull the trigger, but continually review opportunities across many industries…the common thread connecting all of our investments and acquisitions over the years is that we saw each as representing attractive value for Loews shareholders.” Therefore, as with Berkshire Hathaway, the nature of the company will change over time as the Tisch family perceives certain industries as becoming more attractive and others less so, making investments and divestitures accordingly.

The company actually started as the Loews Theaters cinema chain, which MGM was required to sell off in the 1950s. Having started their career by buying a 300-bed hotel in New Jersey in the late 1940s, Larry and Bob Tisch used its profits to buy several more hotels in the Catskills and Atlantic City. They then used their hotel profits to buy control of the Loews theatre chain in 1960.

Over the next two decades they sold off the valuable city centre cinema locations for redevelopment while expanding the hotel business. They purchased several other businesses in the 1960s and 1970s, including the Lorillard Tobacco Company in 1968, insurer CNA Financial in 1974, and Bulova Watches in 1979. As Loews grew, revenues expanded from $100 million in 1970 to $3 billion by 1980. (Figures in U.S. dollars.)

Larry Tisch became the controversial CEO of broadcaster CBS after buying a 24.9% stake through Loews in 1986. He cut costs and sold off the publishing and music businesses but almost doubled the value of the company before selling it to Westinghouse in 1995. By the early 2000s, Loews revenues had climbed to $17 billion.

Among the specific examples that Loews cites of its value-oriented contrarian approach is the creation of a subsidiary in the late 1980s to buy offshore drilling rigs at the depressed prices then prevailing after oil fell to $10 per barrel. Forming the predecessor company to Diamond offshore with these initial rigs, it took the company public in 1995, retaining a controlling 50.4% stake.

It also acquired pipeline operator Texas Gas Transmission in 2003 during a period when several owners of natural gas pipelines were experiencing financial distress in the aftermath of the Enron collapse. One year later, Loews acquired Gulf South Pipeline, a strategic fit with Texas Gas as their pipelines were contiguous. In 2005, Loews contributed both pipelines to Boardwalk Pipeline, a newly created master limited partnership (MLP). Boardwalk completed an initial public offering of 34% of its units in 2005 while Loews retained complete ownership of the general partner, which manages the pipeline network. Finally, in 2007, Loews created a new subsidiary, HighMount Exploration & Production, to purchase depressed natural gas assets from Dominion Resources for $4 billion.

Meanwhile, Loews is equally ready to sell all or part of those businesses in which it does not foresee favourable developments or where it believes that full value has been achieved. In 2006, it created a tracking stock, Carolina Group, for its Lorillard tobacco business, the market leader in menthol cigarettes. Loews raised $740 million by selling shares in Carolina and subsequently spun off its own stake in the company to its shareholders in 2008. It also sold Bulova Watches in 2007.

The only business that it has retained through the last half century has been hotels. It’s the smallest of the Loews divisions (2% of 2010 revenues) but the family seems to have an attachment to it as it is the original business that started the company on its way. Loews owns 18 luxury hotels in the U.S. and Canada.

Loews has a very strong balance sheet with $4.64 billion in cash, up from $3 billion at the end of 2009, and only $870 million in debt. That leaves the company with over $3.75 billion in cash available to make acquisitions. While noting that this high cash position is not unusual at the moment amongst U.S. corporations, Loews makes the point that its cash is neither held offshore (and thus liable to heavy taxation if repatriated to the U.S.) nor encumbered. However, the company noted that while it values the flexibility that a cash surplus provides, it was not considered a permanent holding.

While receiving low interest rates on its cash, Loews feels no pressure to invest as the competition from private equity firms and low rates have made others willing to accept lower returns. In the meantime, Loews used some its cash to repurchase 11 million shares (2.6% of the outstanding total) in 2010 for $405 million. This continues a long-standing trend as the number of shares outstanding (adjusted for splits) has shrunk by two-thirds since 1971, from 1.3 billion to 413 million.

Loews is also willing to invest in its subsidiaries. It purchased $1.25 billion worth of special preferred shares in CNA, the seventh-largest commercial insurer and thirteenth-largest property and casualty insurer in the U.S., during the financial crisis in 2008. CNA redeemed the remaining $1 billion in 2010. It also sold its remaining asbestos and environmental pollution liabilities via a reinsurance deal to Berkshire Hathaway’s National Indemnity subsidiary for $2 billion. CNA booked a $365 million loss on the deal but increased its net income to $690 million from $419 million on revenues of $5.9 billion (63% of Loews’ revenues). The insurance company earned a 9.6% return on equity (ROE) before the exceptional loss and had an operating ratio of 94.8%, its best in 10 years. Book value increased 13% to $40.70 a share and it paid Loews $76 million in preferred dividends. With its share price recently at $29.90, CNA sells at a 26% discount to NAV.

Diamond Offshore was affected by the moratorium on drilling in Gulf of Mexico after the BP Macondo well blowout but had already been positioning its rigs outside of the U.S. where they were earning higher rates. As a result, 16 of its 46 rigs are offshore Brazil and Diamond moved two rigs to West Africa and Egypt during the moratorium, leaving only five (three semi-submersible and two jack-up) operating in the Gulf of Mexico.

While the moratorium affected Diamond’s second half, it had revenues of $3.3 billion (23% of Loews’ revenues) and net income of $955 million, making 2010 the third most profitable year in its history. It has a $6.6 billion contract backlog. With 90% of its deepwater fleet fully committed for 2011, Diamond has ordered two deepwater drill ships from Hyundai of South Korea for $1.2 billion for delivery in 2013 and paid Loews $368 million in dividends in 2010.

Boardwalk Pipeline is the other major contributor to the Loews bottom line. The company’s 14,200 miles of pipelines in 12 states produced $1.1 billion in revenue in 2010 (7.7% of Loews’s revenues), up 23% from the previous year, while generating distributable cash flow of $448 million and net income of $289 million, up 78%. Having built three compressor projects to increase its average daily throughput to 6.8 billion cu. ft., Boardwalk will enjoy the benefits of higher volume from this expansion. About 78% of its revenues are derived from take or pay contracts which pay for capacity on its network whether the customer uses it or not, giving predictability of revenues. It paid Loews $276 million in dividends and distributions in 2010, making it the second largest contributor after Diamond.

HighMount has been suffering from the low price of natural gas, but Loews’ long-term approach means they are not overly concerned. However, they did replace the CEO last year while selling non-strategic acreage in Alabama and Michigan representing 17% of total proved reserves for $500 million to reduce debt to $1.1 billion. With net income of $58 million on revenues of $425 million (2.9% of Loews’ revenues), HighMount made a profit for the first time in three years, after writing off over $2.1 billion in 2009 and 2008 on the back of lower gas prices.

Finally, Loews Hotels made $1 million on revenues of $308 million (2% of Loews’ revenues), up 9% from 2009. Revenue per available room was up 10% to $147.89 on a 70.1% occupancy rate (66.4% in 2009) but that was still 18% below 2008 as the hotel industry struggled to recover from the recession.

Investors should buy Loews as a conservatively managed conglomerate which is selling at a double discount. The first is at a small discount to its 2010 year-end net asset value (NAV) of $44.51. The second discount relates to the fact the Loews NAV reflects the share price of CNA, Boardwalk, and Diamond and a couple of them are selling at discounts to their own NAVs.

Loews has demonstrated an ability to make successful strategic investments and disposals in numerous industries. The timing may sometimes appear to be premature, as with natural gas today, but the long-term track record, as with offshore drilling rigs in the late 1980s or tobacco in the 1970s, commands respect. Loews realized $4.4 billion on its disposal of Carolina Group in 2008 in addition to the initial $740 million raised in 2006, contributing to the 17.6% compound annual return from its stock since 1960. That compares to 9.6% for the S&P 500 Index.

Similar to Berkshire Hathaway, Loews has a lot of volatility in its earnings, which have varied between $1.30 a share and $9.05 in the last five years. Rather like the ultimate insurance-based conglomerate based in Omaha, Loews` management focuses on the long term and prefers book value, which has increased almost 50% between 2006 and 2010 from $30.17 to $44.51, as a better guide to performance than earnings.

The Tisches have almost as impressive a record as Warren Buffett and, unlike Berkshire, have successfully managed a transfer of leadership from one generation to the next. Loews even pays a (small) dividend of $0.0625 a quarter ($0.25 a year), giving you a yield of 0.6%, better than a U.S. dollar bank account.

Action now: Buy for capital appreciation. The shares closed on Friday at $44.26.

– end Gavin Graham

 

GORDON PAPE’S UPDATES

TOP

Cenovus Energy (TSX, NYSE: CVE)

Originally recommended by Yola Edwards as part of Encana on Oct. 23/06 (IWB #2638) at a spin-off adjusted price of C$25.93, US$23.06. Closed Friday at C$36.38, US$38.40

It’s not very often that a company’s profit will plunge more than 90% and investors hardly blink. But that’s what happened last week when Cenovus Energy released its first-quarter results.

The Encana spin-off reported earnings of only $47 million ($0.06 per share) compared to $525 million ($0.70 per share) in the same period of 2010. What happened? About half of the drop can be attributed to an unrealized after-tax hedging loss of $201 million. For the rest, the company blamed lower average sales prices for oil and natural gas, a $26 million increase in current income tax expense, and higher royalty payments.

So why did the stock hold steady after the news was released? In part, because of impressive production growth. Output from the company’s Foster Creek and Christina Lake oil sands operations was almost 67,000 barrels per day (bbls/d) net to Cenovus in the first quarter, representing a 14% increase compared with the same period in 2010.

And that’s just the beginning. The company has received approval from the Alberta Energy Resources Conservation Board to increase its oil production by 120,000 bbls/d. Added to previous approvals, Cenovus now has authority to add up to 290,000 bbls/d to its output. The company’s goal is to be producing at five times the current rate by 2019.

As part of this aggressive target, CVE will invest $190 million this year in exploration and development. Of this, about $110 million has been allocated to drilling and facilities at Pelican Lake, which is a relatively small producer right now, and $50 million to drilling at Lower Shaunavon. The balance will be spent on future Foster Creek and Christina Lake development.

Despite the sharp drop in net earnings, the directors approved a quarterly dividend of $0.20 a share which will be paid on June 30 to shareholders of record as of June 15.

Action now: Hold. Watch for a new entry point below $34.

Berkshire Hathaway B (NYSE: BRK.B)

Originally recommended by Yola Edwards on June 20/05 (IWB #2524) at a split-adjusted price of $53.74. Closed Friday at $83.30. (All prices in U.S. dollars.)

Warren Buffett spoke to the faithful at the company’s annual meeting in Omaha this weekend so it seems like an opportune time to update the stock. Unfortunately, the news is not good. The entire organization is under a cloud as a result of the resignation of David Sokol, the man who was thought to be Berkshire’s crown prince.

Mr. Sokol was sharply criticized by the company’s audit committee on the eve of the annual meeting for buying almost 100,000 shares of specialty chemical maker Lubrizol Corp. before recommending that Berkshire acquire the company. Berkshire announced in mid-March that it was buying Lubrizol for $9.7 billion, which represented a 28% premium over the market price at the time. Mr. Sokol made a reported personal profit of $3 million on the deal.

After the Lubrizol offer was announced, Berkshire shares, which had traded as high as $87.28 on Feb. 28, fell to $80.95 on March 16 before rallying somewhat.

All this cast a pall over the Omaha meeting, which is normally a Buffett love-in. The company has been touched by scandal and Mr. Buffett, who will be 81 on Aug. 30, no longer has an obvious heir-apparent.

At the current price, the shares are trading at almost exactly the same level as at the time of our last review in September, when they were at $83.32. At the time, I advised taking new positions below $80 and there were several opportunities to do that in the months that followed.

At this point, I suggest we take our profits and move on. The massive Buffett empire will soon have to bring in new leadership – no one lives forever, even the wealthiest among us. In the meantime, Berkshire will be preoccupied finding its way out of the Lubrizol swamp. If you want to invest in a U.S. conglomerate, Loews looks like a better bet at this stage.

Action now: Sell. We have a capital gain of 55% on this one.

Lundin Mining (TSX: LUN, OTC: LUNMF)

Originally recommended by Yola Edwards on May 17/07 (IWB #2719) at C$14.18. Closed Friday at C$9.26, US$9.72.

In the latest installment of the Lundin saga, a Chinese consortium is reported to be preparing to make a multi-billion offer for the Canadian mining company which has a 24% stake in the rich Tenke Fungurume copper/cobalt deposit in the Congo. On Friday, The Globe and Mail quoted Greg Barnes of TD Securities as saying Lundin could be worth as much as $6.9 billion or $11.70 a share.

The market responded, driving up the price by $0.92 a share to finish the week at $9.26. In intra-day trading, the shares touched $9.31, their highest level in more than three years.

If the Chinese are really willing to ante up more than $11 a share, there is still some money to be made. But based on recent history, investors are right to be wary about any reports of a takeover bid for Lundin.

We’ve already seen two failed matches this year. First, Lundin announced a friendly merger with Inmet Mining to create a copper mining company of world-class stature. That collapsed after the Panamanian government decided to micro-manage the terms of Inmet’s proposed new mine in that country, imposing millions of dollars in extra costs in the process. Lundin said the cost of the development had become too rich and pulled the plug.

Then Equinox Minerals launched a hostile bid for Lundin which was strongly opposed by the company. That was derailed last week when Barrick Gold shocked everyone by outbidding China Minmetals for Equinox. One of the conditions of the deal was that the Lundin offer be dropped.

So now we’re back in the realm of rumour and speculation, waiting to see what happens next. Lundin’s management played coy on Friday, issuing a statement that used a lot of words to say simply that they are still looking at options and they’ll let us know if and when anything comes up.

One thing is certain: many people believe that Lundin is worth a lot of money. Eventually the company will be taken over, perhaps at a premium to the current price. When that will happen and how much shareholders will receive remains anyone’s guess.

Action now: Hold. – G.P.

YOUR QUESTIONS

Political promises

Q – Currently, two political parties in Canada, if elected, are advocating an increase in the corporate tax rate from +/- 16% to +/- 19%. We’ve heard about the effect this increase may have on a corporation’s ability to spend, creating jobs, etc. But what effect, if any, would this increase have on a corporation’s ability to pay dividends to its shareholders, especially pension plans that count on the dividend payments to meet their pension commitments? – Mike T., Courtenay BC

A – Dividends are paid from after-tax earnings. A tax increase would obviously reduce earnings and, by extension, the amount available to pay out in dividends. That said, companies are usually reluctant to cut dividends because of the impact on their share price and on their credibility in the financial world. So in practical terms a modest tax increase, in and of itself, would be unlikely to lead directly to a dividend reduction. – G.P.

Out of work

Q – I will be out of work within a few weeks and I am wondering how best to hold the money I will be living off for the time I am out of work. Between my tax refund, my performance bonus, plus compensation package from my company, I figure I could manage well for a year in the event that I cannot find suitable work. So I am wondering if I should use my TFSA room for part and simply put the rest into a savings account to live off of, or contribute as much as I can to my RRSP and withdraw as needed on the basis that I would be doing so at a lower tax bracket since I will have reduced income. – Xavier D.

A – It is impossible to give you a precise answer without knowing all the numbers. However, here are some points to consider.

For starters, it sounds like you are being laid off. Therefore some of the money you receive from your employer will qualify as a "retiring allowance" and therefore can be rolled directly into an RRSP. That means no tax will be withheld and none will be payable on that amount if it stays in the plan. You should consult a financial planner to determine the exact amount that can be treated in this way.

Once the RRSP has been taken care of, the Tax-Free Savings Account is a good option and you should make the maximum possible contribution. However, since you may need to withdraw money to live on, be sure to choose a plan that allows unlimited free withdrawals and invest in something safe and liquid, such as a high-interest savings account.

If there is still some cash left after the RRSP and the TFSA, keep it in an easily accessible high-interest account. – G.P.

U.S. dollar holdings

Q – Although we are now over 70, my wife and I hope to continue enjoying the Florida winter sun for the next 20+ years, just as we have since my retirement at age 52. (We purchased our Florida home when our dollar was $0.69 vs. the U.S. dollar). Therefore, with our Canadian dollar now at $1.05, I feel we should move some of the fixed-income portion of our portfolio into U.S. dollar fixed-income investments. In none of your three newsletters do I see any recommendations in this area. Do you have any such recommendations or is their a reason why Canadians should not purchase them? (P.S. Thanks to your newsletters this lifestyle continues to be possible.) – A.H., Buckhorn ON

A – Because of the rise in the value of the loonie, we have generally avoided U.S. fixed-income recommendations and there has been very little demand for them from members. One notable exception is the PIMCO Income Opportunity Fund, a closed-end U.S. bond fund that trades on the New York Stock Exchange under the symbol PKO. PIMCO, based in Newport Beach, California, is one of the world’s most respected bond managers. This fund is sponsored by Allianz Global Investors.

The fund was recommended by contributing editor Glenn Rogers in October 2009 at US$21.63 and closed on Friday at US$28.75. We have received distributions to date of $4.37 per share for a total return of 53.1% in U.S. dollar terms. The monthly distribution was recently raised from $0.177 to $0.19 per share.

The portfolio is broadly diversified with an emphasis on mortgages and corporate bonds. You can find more details about this fund at: http://www.allianzinvestors.com/Products/pages/457.aspx?ShareClassCode=ARTIFICIAL. – G.P.

 

MEMBERS’ CORNER

TOP

Tax software

Member comment: I have just used Tax Chopper (www.taxchopper.ca) for my income tax preparation. You mentioned it a couple of years ago but I didn’t need until now. I did call them a couple of times back then – they are in Toronto. I had no trouble getting through and they were very helpful. It’s pretty straightforward, has help functions, and suggests optimum pension splitting amounts.

You don’t pay until you have completed your returns and they will even talk to you to help with your return if you need it. So if you don’t like it you can try another company.

It costs approximately $10 for one return, $16 for two, and $20 for three to five etc. and includes Netfile and efile. It is actually free for certain personal situations. There is no software to install – it is cloud software, so you have to be comfortable having your data stored on their servers. I found data recovery was always instantaneous.

I have not tried any others so can’t compare but I see no reason not to use it again next year. – David B., British Columbia

Response: Thanks for the input. If any other members would like to comment on the tax software they used, pro or con, send your remarks directly to me at Gordon.pape@buildingwealth.ca. – G.P.

 

That’s all for this week. We will be back on May 9.

Best regards,

Gordon Pape
gordon.pape@buildingwealth.ca
Circulation matters: customer.service@buildingwealth.ca

All material in the Internet Wealth Builder is copyright Gordon Pape Enterprises Ltd. and may not be reproduced in whole or in part in any form without written consent. None of the content in this newsletter is intended to be, nor should be interpreted as, an invitation to buy or sell securities. All recommendations are based on information that is believed to be reliable. However, results are not guaranteed and the publishers, contributors, and distributors of the Internet Wealth Builder assume no liability whatsoever for any material losses that may occur. Readers are advised to consult a professional financial advisor before making any investment decisions. The staff of and contributors to the Internet Wealth Builder may hold positions in securities mentioned in this newsletter, either personally or through managed accounts. No compensation for recommending particular securities, services, or financial advisors is solicited or accepted.

In This Issue

KEEP MORE OF YOUR MONEY

By Gordon Pape, Editor and Publisher

Now that the 2010 tax filing season is over, let’s take some time to discuss ways to keep more of your investment income this year. Our patchwork tax system offers all kinds of opportunities to reduce the government’s share of profits earned in non-registered accounts. But if you don’t structure your portfolio to take advantage of them, you’ll end up paying more than you need to. Here are some ideas for putting more money in your pocket.

Buy dividend-paying stocks. Although the value of the dividend tax credit has been shrinking, as I discussed in last week’s issue, dividends are still worth a lot more on an after-tax basis than comparable interest income. In fact, lower-income investors will pay little or no tax on dividend income. If your taxable income is $41,000 or less and you live in British Columbia, Alberta, Yukon, or Northwest Territories, your 2011 tax rate on eligible dividends will be zero according to Ernst & Young’s on-line tax calculator. In most other provinces, it will be less than 4%. The exceptions are Quebec (11.42%), Nova Scotia (9.39%), and P.E.I. (4.65%). By comparison, the marginal rate on the same amount of interest income will range from a low of 22% (Nunavut) to a high of 32.53% (Quebec).

The higher your tax bracket, the more you’ll pay on dividends but the rate will still be much less than on interest income. For example, an Ontario resident with taxable income of $75,000 will be taxed at a rate of 12.5% on dividends but will pay the government almost one-third of any interest income received (32.98%). For investors in the top bracket, the most you will pay on eligible dividends is 31.85% in Quebec followed by Nova Scotia at 30.7% and Ontario at 28.19%. The most dividend-friendly jurisdictions in the country are Alberta and Yukon, both with top rates of 17.72%. The tax on interest income ranges from 39% in Alberta to 48.22% in Quebec.

Dividend-paying stocks are also worth holding in a Tax-Free Savings Account. You won’t get the dividend tax credit but it won’t matter because all withdrawals are tax free.

Invest for capital gains under certain conditions. Our tax system has become somewhat schizophrenic when it comes to capital gains and dividends. Logic suggests that capital gains should be taxed at a lower rate since there is more risk involved. But that is not always the case and your priorities should be influenced by your income level and your place of residence.

To illustrate, an Alberta resident with taxable income of $150,000 will pay $190 in tax on $1,000 worth of realized capital gains. Tax on the same amount of dividend income will be $177.20. Why take the risk? In contrast, the same person in Ontario will pay almost five percentage points less on capital gains than on dividend income.

The lower your income, the less attractive capital gains become on an after-tax basis. A Saskatchewan resident earning $50,000 will pay the government $175 on every $1,000 worth of capital gains but only $107.70 on the same amount of dividend income.

No wonder investors are confused! Our system is completely lacking in consistency.

Buy REITs but carefully. Real estate investment trusts generally escaped the federal government’s new trust tax, although several of them had to reorganize their businesses to qualify for the exemption. As a result, some REITs continue to offer a tax-efficient place to invest although the benefits will vary from year to year and from REIT to REIT.

For example, shareholders in RioCan, the country’s largest REIT, received $1.38 per unit in distributions in 2010. Of that, about $0.80 was treated as tax-deferred return of capital and $0.06 as capital gain. The rest was taxable at the shareholder’s marginal rate. In contrast, Canadian REIT paid out $1.41 per unit last year of which all but about $0.23 was fully taxable. Obviously, RioCan was much the better choice for non-registered accounts.

It’s clear from this that all REITs are not equally tax effective. So if you are buying units in a non-registered account, do your homework first. Choosing the wrong REIT will only serve to make the tax collector happier.

Look at tax-advantaged mutual funds. The mutual fund industry has used some clever financial engineering to devise all sorts of ways to beat the tax folks and so far the Canada Revenue Agency has not challenged them. A little-known limited partnership called NexGen Financial has been the most aggressive in this regard, building its entire line-up so as to maximize tax efficiency.

Depending on your situation, you can invest in NexGen funds (including a bond fund) that pay only dividends, capital gains, tax-deferred return of capital (ROC), or that offer tax-efficient compound growth. In 2010, the annual cash distributions from dividend and ROC funds ranged from a low of 3% of net asset value to a high of 12.1%. The company was launched in 2006 and CEO Laurie Munro says that the tax objectives of each fund have been met every year.

However, you will need to choose carefully if you decide to invest with them. Some of the funds have sub-par performance records, proving it is never a good idea to buy a security strictly on the basis of tax considerations. The best bets include NexGen Global Value Fund, NexGen Balanced Growth Fund, and NexGen Canadian Large Cap Fund. Note that these funds require a minimum initial investment of $2,500.

Many of the mainstream mutual fund companies offer tax-efficient versions of their most popular funds. For example, Fidelity Investments has what they call T-SWP units (SWP stands for Systematic Withdrawal Plan). These enable investors to generate monthly cash flow, most of which is received as return of capital. That means no tax will be paid until the units are sold or the adjusted cost base (ACB) reaches zero. You’ll generally have to pay a little more for these units in the form of a higher management expense ratio but the tax savings may be worth it.

There are other ways to improve after-tax returns but these have the advantage of being available to almost all investors. If you paid too much on your investment income in 2010, take time now to review your portfolio with a view to making it more tax-effective. A year from now you’ll be happy you did.

 

Follow Gordon Pape’s latest updates on Twitter: http://twitter.com/GPUpdates

ANOTHER BERKSHIRE HATHAWAY?

We welcome back contributing editor Gavin Graham who has been on the hunt for a new stock to recommend. He has found a good one although at first glance you may think he’s talking about a different company. Gavin is the CEO of Graham Investment Strategy and a frequent guest on radio and television business shows. Here is his report.

Gavin Graham writes:

I have a new stock pick for you this week: Loews Corporation. Your first reaction may be: oh, that’s the big box home improvement chain that competes with Home Depot. Nope – that one is spelled Lowes.

The Loews I’m recommending is a U.S. conglomerate that is often described as another Berkshire Hathaway. It trades on the New York Stock Exchange under the one-letter symbol L.

Loews Corp. is managed and partially owned by the Tisch family. Initially, brothers Larry and Bob Tisch were in control but they died in 2003 and 2005 respectively. They were succeeded by Larry’s sons James and Andrew and Bob’s son Jonathan who continued to build the multi-billion dollar company that follows many of the same investment rules as Warren Buffett’s much better known Berkshire Hathaway.

Loews even invests in many of the same industries, with its largest divisions comprised of insurance (90%-owned CNA Financial) and pipelines (66%-owned Boardwalk Pipeline Partners). It also owns a 50.4% stake in deepwater driller Diamond Offshore Drilling and 100% of Loews Hotels and natural gas company HighMount Exploration & Production.

Loews describes itself as “a diversified holding company with the flexibility to pursue investments and acquisitions wherever we see opportunity.” It lists three primary means of achieving superior risk-adjusted returns for its shareholders:

1. Optimizing its subsidiaries’ operating performance and capital structure.

2. Making opportune investments and acquisitions.

3. Effectively managing and allocating holding company capital.

The second route, making opportune acquisitions, is identified by Loews as one of its most important means of adding value. The company says: “We rarely pull the trigger, but continually review opportunities across many industries…the common thread connecting all of our investments and acquisitions over the years is that we saw each as representing attractive value for Loews shareholders.” Therefore, as with Berkshire Hathaway, the nature of the company will change over time as the Tisch family perceives certain industries as becoming more attractive and others less so, making investments and divestitures accordingly.

The company actually started as the Loews Theaters cinema chain, which MGM was required to sell off in the 1950s. Having started their career by buying a 300-bed hotel in New Jersey in the late 1940s, Larry and Bob Tisch used its profits to buy several more hotels in the Catskills and Atlantic City. They then used their hotel profits to buy control of the Loews theatre chain in 1960.

Over the next two decades they sold off the valuable city centre cinema locations for redevelopment while expanding the hotel business. They purchased several other businesses in the 1960s and 1970s, including the Lorillard Tobacco Company in 1968, insurer CNA Financial in 1974, and Bulova Watches in 1979. As Loews grew, revenues expanded from $100 million in 1970 to $3 billion by 1980. (Figures in U.S. dollars.)

Larry Tisch became the controversial CEO of broadcaster CBS after buying a 24.9% stake through Loews in 1986. He cut costs and sold off the publishing and music businesses but almost doubled the value of the company before selling it to Westinghouse in 1995. By the early 2000s, Loews revenues had climbed to $17 billion.

Among the specific examples that Loews cites of its value-oriented contrarian approach is the creation of a subsidiary in the late 1980s to buy offshore drilling rigs at the depressed prices then prevailing after oil fell to $10 per barrel. Forming the predecessor company to Diamond offshore with these initial rigs, it took the company public in 1995, retaining a controlling 50.4% stake.

It also acquired pipeline operator Texas Gas Transmission in 2003 during a period when several owners of natural gas pipelines were experiencing financial distress in the aftermath of the Enron collapse. One year later, Loews acquired Gulf South Pipeline, a strategic fit with Texas Gas as their pipelines were contiguous. In 2005, Loews contributed both pipelines to Boardwalk Pipeline, a newly created master limited partnership (MLP). Boardwalk completed an initial public offering of 34% of its units in 2005 while Loews retained complete ownership of the general partner, which manages the pipeline network. Finally, in 2007, Loews created a new subsidiary, HighMount Exploration & Production, to purchase depressed natural gas assets from Dominion Resources for $4 billion.

Meanwhile, Loews is equally ready to sell all or part of those businesses in which it does not foresee favourable developments or where it believes that full value has been achieved. In 2006, it created a tracking stock, Carolina Group, for its Lorillard tobacco business, the market leader in menthol cigarettes. Loews raised $740 million by selling shares in Carolina and subsequently spun off its own stake in the company to its shareholders in 2008. It also sold Bulova Watches in 2007.

The only business that it has retained through the last half century has been hotels. It’s the smallest of the Loews divisions (2% of 2010 revenues) but the family seems to have an attachment to it as it is the original business that started the company on its way. Loews owns 18 luxury hotels in the U.S. and Canada.

Loews has a very strong balance sheet with $4.64 billion in cash, up from $3 billion at the end of 2009, and only $870 million in debt. That leaves the company with over $3.75 billion in cash available to make acquisitions. While noting that this high cash position is not unusual at the moment amongst U.S. corporations, Loews makes the point that its cash is neither held offshore (and thus liable to heavy taxation if repatriated to the U.S.) nor encumbered. However, the company noted that while it values the flexibility that a cash surplus provides, it was not considered a permanent holding.

While receiving low interest rates on its cash, Loews feels no pressure to invest as the competition from private equity firms and low rates have made others willing to accept lower returns. In the meantime, Loews used some its cash to repurchase 11 million shares (2.6% of the outstanding total) in 2010 for $405 million. This continues a long-standing trend as the number of shares outstanding (adjusted for splits) has shrunk by two-thirds since 1971, from 1.3 billion to 413 million.

Loews is also willing to invest in its subsidiaries. It purchased $1.25 billion worth of special preferred shares in CNA, the seventh-largest commercial insurer and thirteenth-largest property and casualty insurer in the U.S., during the financial crisis in 2008. CNA redeemed the remaining $1 billion in 2010. It also sold its remaining asbestos and environmental pollution liabilities via a reinsurance deal to Berkshire Hathaway’s National Indemnity subsidiary for $2 billion. CNA booked a $365 million loss on the deal but increased its net income to $690 million from $419 million on revenues of $5.9 billion (63% of Loews’ revenues). The insurance company earned a 9.6% return on equity (ROE) before the exceptional loss and had an operating ratio of 94.8%, its best in 10 years. Book value increased 13% to $40.70 a share and it paid Loews $76 million in preferred dividends. With its share price recently at $29.90, CNA sells at a 26% discount to NAV.

Diamond Offshore was affected by the moratorium on drilling in Gulf of Mexico after the BP Macondo well blowout but had already been positioning its rigs outside of the U.S. where they were earning higher rates. As a result, 16 of its 46 rigs are offshore Brazil and Diamond moved two rigs to West Africa and Egypt during the moratorium, leaving only five (three semi-submersible and two jack-up) operating in the Gulf of Mexico.

While the moratorium affected Diamond’s second half, it had revenues of $3.3 billion (23% of Loews’ revenues) and net income of $955 million, making 2010 the third most profitable year in its history. It has a $6.6 billion contract backlog. With 90% of its deepwater fleet fully committed for 2011, Diamond has ordered two deepwater drill ships from Hyundai of South Korea for $1.2 billion for delivery in 2013 and paid Loews $368 million in dividends in 2010.

Boardwalk Pipeline is the other major contributor to the Loews bottom line. The company’s 14,200 miles of pipelines in 12 states produced $1.1 billion in revenue in 2010 (7.7% of Loews’s revenues), up 23% from the previous year, while generating distributable cash flow of $448 million and net income of $289 million, up 78%. Having built three compressor projects to increase its average daily throughput to 6.8 billion cu. ft., Boardwalk will enjoy the benefits of higher volume from this expansion. About 78% of its revenues are derived from take or pay contracts which pay for capacity on its network whether the customer uses it or not, giving predictability of revenues. It paid Loews $276 million in dividends and distributions in 2010, making it the second largest contributor after Diamond.

HighMount has been suffering from the low price of natural gas, but Loews’ long-term approach means they are not overly concerned. However, they did replace the CEO last year while selling non-strategic acreage in Alabama and Michigan representing 17% of total proved reserves for $500 million to reduce debt to $1.1 billion. With net income of $58 million on revenues of $425 million (2.9% of Loews’ revenues), HighMount made a profit for the first time in three years, after writing off over $2.1 billion in 2009 and 2008 on the back of lower gas prices.

Finally, Loews Hotels made $1 million on revenues of $308 million (2% of Loews’ revenues), up 9% from 2009. Revenue per available room was up 10% to $147.89 on a 70.1% occupancy rate (66.4% in 2009) but that was still 18% below 2008 as the hotel industry struggled to recover from the recession.

Investors should buy Loews as a conservatively managed conglomerate which is selling at a double discount. The first is at a small discount to its 2010 year-end net asset value (NAV) of $44.51. The second discount relates to the fact the Loews NAV reflects the share price of CNA, Boardwalk, and Diamond and a couple of them are selling at discounts to their own NAVs.

Loews has demonstrated an ability to make successful strategic investments and disposals in numerous industries. The timing may sometimes appear to be premature, as with natural gas today, but the long-term track record, as with offshore drilling rigs in the late 1980s or tobacco in the 1970s, commands respect. Loews realized $4.4 billion on its disposal of Carolina Group in 2008 in addition to the initial $740 million raised in 2006, contributing to the 17.6% compound annual return from its stock since 1960. That compares to 9.6% for the S&P 500 Index.

Similar to Berkshire Hathaway, Loews has a lot of volatility in its earnings, which have varied between $1.30 a share and $9.05 in the last five years. Rather like the ultimate insurance-based conglomerate based in Omaha, Loews` management focuses on the long term and prefers book value, which has increased almost 50% between 2006 and 2010 from $30.17 to $44.51, as a better guide to performance than earnings.

The Tisches have almost as impressive a record as Warren Buffett and, unlike Berkshire, have successfully managed a transfer of leadership from one generation to the next. Loews even pays a (small) dividend of $0.0625 a quarter ($0.25 a year), giving you a yield of 0.6%, better than a U.S. dollar bank account.

Action now: Buy for capital appreciation. The shares closed on Friday at $44.26.

– end Gavin Graham

 

GORDON PAPE’S UPDATES

Cenovus Energy (TSX, NYSE: CVE)

Originally recommended by Yola Edwards as part of Encana on Oct. 23/06 (IWB #2638) at a spin-off adjusted price of C$25.93, US$23.06. Closed Friday at C$36.38, US$38.40

It’s not very often that a company’s profit will plunge more than 90% and investors hardly blink. But that’s what happened last week when Cenovus Energy released its first-quarter results.

The Encana spin-off reported earnings of only $47 million ($0.06 per share) compared to $525 million ($0.70 per share) in the same period of 2010. What happened? About half of the drop can be attributed to an unrealized after-tax hedging loss of $201 million. For the rest, the company blamed lower average sales prices for oil and natural gas, a $26 million increase in current income tax expense, and higher royalty payments.

So why did the stock hold steady after the news was released? In part, because of impressive production growth. Output from the company’s Foster Creek and Christina Lake oil sands operations was almost 67,000 barrels per day (bbls/d) net to Cenovus in the first quarter, representing a 14% increase compared with the same period in 2010.

And that’s just the beginning. The company has received approval from the Alberta Energy Resources Conservation Board to increase its oil production by 120,000 bbls/d. Added to previous approvals, Cenovus now has authority to add up to 290,000 bbls/d to its output. The company’s goal is to be producing at five times the current rate by 2019.

As part of this aggressive target, CVE will invest $190 million this year in exploration and development. Of this, about $110 million has been allocated to drilling and facilities at Pelican Lake, which is a relatively small producer right now, and $50 million to drilling at Lower Shaunavon. The balance will be spent on future Foster Creek and Christina Lake development.

Despite the sharp drop in net earnings, the directors approved a quarterly dividend of $0.20 a share which will be paid on June 30 to shareholders of record as of June 15.

Action now: Hold. Watch for a new entry point below $34.

Berkshire Hathaway B (NYSE: BRK.B)

Originally recommended by Yola Edwards on June 20/05 (IWB #2524) at a split-adjusted price of $53.74. Closed Friday at $83.30. (All prices in U.S. dollars.)

Warren Buffett spoke to the faithful at the company’s annual meeting in Omaha this weekend so it seems like an opportune time to update the stock. Unfortunately, the news is not good. The entire organization is under a cloud as a result of the resignation of David Sokol, the man who was thought to be Berkshire’s crown prince.

Mr. Sokol was sharply criticized by the company’s audit committee on the eve of the annual meeting for buying almost 100,000 shares of specialty chemical maker Lubrizol Corp. before recommending that Berkshire acquire the company. Berkshire announced in mid-March that it was buying Lubrizol for $9.7 billion, which represented a 28% premium over the market price at the time. Mr. Sokol made a reported personal profit of $3 million on the deal.

After the Lubrizol offer was announced, Berkshire shares, which had traded as high as $87.28 on Feb. 28, fell to $80.95 on March 16 before rallying somewhat.

All this cast a pall over the Omaha meeting, which is normally a Buffett love-in. The company has been touched by scandal and Mr. Buffett, who will be 81 on Aug. 30, no longer has an obvious heir-apparent.

At the current price, the shares are trading at almost exactly the same level as at the time of our last review in September, when they were at $83.32. At the time, I advised taking new positions below $80 and there were several opportunities to do that in the months that followed.

At this point, I suggest we take our profits and move on. The massive Buffett empire will soon have to bring in new leadership – no one lives forever, even the wealthiest among us. In the meantime, Berkshire will be preoccupied finding its way out of the Lubrizol swamp. If you want to invest in a U.S. conglomerate, Loews looks like a better bet at this stage.

Action now: Sell. We have a capital gain of 55% on this one.

Lundin Mining (TSX: LUN, OTC: LUNMF)

Originally recommended by Yola Edwards on May 17/07 (IWB #2719) at C$14.18. Closed Friday at C$9.26, US$9.72.

In the latest installment of the Lundin saga, a Chinese consortium is reported to be preparing to make a multi-billion offer for the Canadian mining company which has a 24% stake in the rich Tenke Fungurume copper/cobalt deposit in the Congo. On Friday, The Globe and Mail quoted Greg Barnes of TD Securities as saying Lundin could be worth as much as $6.9 billion or $11.70 a share.

The market responded, driving up the price by $0.92 a share to finish the week at $9.26. In intra-day trading, the shares touched $9.31, their highest level in more than three years.

If the Chinese are really willing to ante up more than $11 a share, there is still some money to be made. But based on recent history, investors are right to be wary about any reports of a takeover bid for Lundin.

We’ve already seen two failed matches this year. First, Lundin announced a friendly merger with Inmet Mining to create a copper mining company of world-class stature. That collapsed after the Panamanian government decided to micro-manage the terms of Inmet’s proposed new mine in that country, imposing millions of dollars in extra costs in the process. Lundin said the cost of the development had become too rich and pulled the plug.

Then Equinox Minerals launched a hostile bid for Lundin which was strongly opposed by the company. That was derailed last week when Barrick Gold shocked everyone by outbidding China Minmetals for Equinox. One of the conditions of the deal was that the Lundin offer be dropped.

So now we’re back in the realm of rumour and speculation, waiting to see what happens next. Lundin’s management played coy on Friday, issuing a statement that used a lot of words to say simply that they are still looking at options and they’ll let us know if and when anything comes up.

One thing is certain: many people believe that Lundin is worth a lot of money. Eventually the company will be taken over, perhaps at a premium to the current price. When that will happen and how much shareholders will receive remains anyone’s guess.

Action now: Hold. – G.P.

YOUR QUESTIONS

Political promises

Q – Currently, two political parties in Canada, if elected, are advocating an increase in the corporate tax rate from +/- 16% to +/- 19%. We’ve heard about the effect this increase may have on a corporation’s ability to spend, creating jobs, etc. But what effect, if any, would this increase have on a corporation’s ability to pay dividends to its shareholders, especially pension plans that count on the dividend payments to meet their pension commitments? – Mike T., Courtenay BC

A – Dividends are paid from after-tax earnings. A tax increase would obviously reduce earnings and, by extension, the amount available to pay out in dividends. That said, companies are usually reluctant to cut dividends because of the impact on their share price and on their credibility in the financial world. So in practical terms a modest tax increase, in and of itself, would be unlikely to lead directly to a dividend reduction. – G.P.

Out of work

Q – I will be out of work within a few weeks and I am wondering how best to hold the money I will be living off for the time I am out of work. Between my tax refund, my performance bonus, plus compensation package from my company, I figure I could manage well for a year in the event that I cannot find suitable work. So I am wondering if I should use my TFSA room for part and simply put the rest into a savings account to live off of, or contribute as much as I can to my RRSP and withdraw as needed on the basis that I would be doing so at a lower tax bracket since I will have reduced income. – Xavier D.

A – It is impossible to give you a precise answer without knowing all the numbers. However, here are some points to consider.

For starters, it sounds like you are being laid off. Therefore some of the money you receive from your employer will qualify as a "retiring allowance" and therefore can be rolled directly into an RRSP. That means no tax will be withheld and none will be payable on that amount if it stays in the plan. You should consult a financial planner to determine the exact amount that can be treated in this way.

Once the RRSP has been taken care of, the Tax-Free Savings Account is a good option and you should make the maximum possible contribution. However, since you may need to withdraw money to live on, be sure to choose a plan that allows unlimited free withdrawals and invest in something safe and liquid, such as a high-interest savings account.

If there is still some cash left after the RRSP and the TFSA, keep it in an easily accessible high-interest account. – G.P.

U.S. dollar holdings

Q – Although we are now over 70, my wife and I hope to continue enjoying the Florida winter sun for the next 20+ years, just as we have since my retirement at age 52. (We purchased our Florida home when our dollar was $0.69 vs. the U.S. dollar). Therefore, with our Canadian dollar now at $1.05, I feel we should move some of the fixed-income portion of our portfolio into U.S. dollar fixed-income investments. In none of your three newsletters do I see any recommendations in this area. Do you have any such recommendations or is their a reason why Canadians should not purchase them? (P.S. Thanks to your newsletters this lifestyle continues to be possible.) – A.H., Buckhorn ON

A – Because of the rise in the value of the loonie, we have generally avoided U.S. fixed-income recommendations and there has been very little demand for them from members. One notable exception is the PIMCO Income Opportunity Fund, a closed-end U.S. bond fund that trades on the New York Stock Exchange under the symbol PKO. PIMCO, based in Newport Beach, California, is one of the world’s most respected bond managers. This fund is sponsored by Allianz Global Investors.

The fund was recommended by contributing editor Glenn Rogers in October 2009 at US$21.63 and closed on Friday at US$28.75. We have received distributions to date of $4.37 per share for a total return of 53.1% in U.S. dollar terms. The monthly distribution was recently raised from $0.177 to $0.19 per share.

The portfolio is broadly diversified with an emphasis on mortgages and corporate bonds. You can find more details about this fund at: http://www.allianzinvestors.com/Products/pages/457.aspx?ShareClassCode=ARTIFICIAL. – G.P.

 

MEMBERS’ CORNER

Tax software

Member comment: I have just used Tax Chopper (www.taxchopper.ca) for my income tax preparation. You mentioned it a couple of years ago but I didn’t need until now. I did call them a couple of times back then – they are in Toronto. I had no trouble getting through and they were very helpful. It’s pretty straightforward, has help functions, and suggests optimum pension splitting amounts.

You don’t pay until you have completed your returns and they will even talk to you to help with your return if you need it. So if you don’t like it you can try another company.

It costs approximately $10 for one return, $16 for two, and $20 for three to five etc. and includes Netfile and efile. It is actually free for certain personal situations. There is no software to install – it is cloud software, so you have to be comfortable having your data stored on their servers. I found data recovery was always instantaneous.

I have not tried any others so can’t compare but I see no reason not to use it again next year. – David B., British Columbia

Response: Thanks for the input. If any other members would like to comment on the tax software they used, pro or con, send your remarks directly to me at Gordon.pape@buildingwealth.ca. – G.P.

 

That’s all for this week. We will be back on May 9.

Best regards,

Gordon Pape
gordon.pape@buildingwealth.ca
Circulation matters: customer.service@buildingwealth.ca

All material in the Internet Wealth Builder is copyright Gordon Pape Enterprises Ltd. and may not be reproduced in whole or in part in any form without written consent. None of the content in this newsletter is intended to be, nor should be interpreted as, an invitation to buy or sell securities. All recommendations are based on information that is believed to be reliable. However, results are not guaranteed and the publishers, contributors, and distributors of the Internet Wealth Builder assume no liability whatsoever for any material losses that may occur. Readers are advised to consult a professional financial advisor before making any investment decisions. The staff of and contributors to the Internet Wealth Builder may hold positions in securities mentioned in this newsletter, either personally or through managed accounts. No compensation for recommending particular securities, services, or financial advisors is solicited or accepted.