I know how “coupon queens” must feel after a successful trip to the supermarket.
I’m sure you’ve seen those shows or read the stories—the women who have mastered the art of “couponing.” They head off to the Piggly Wiggly with a well-organized sheaf of coupons, and they buy, like, $500 worth of food and cleaning products. Then, after all the coupons are counted, the store owes them money!
Those women have always impressed me. That’s an art form. An Olympic sport.
I don’t have the stamina—or the shelf space—for that kind of commitment. But I do have the patience for another money-making venture that leads to owning things for free.
In this case, it’s not coupons… it’s dividends.
More directly, it’s the power of dividends and something called a Canadian Income Trust.
What Is a Canadian Income Trust?
I have no idea how many Americans know these trusts exist up in the Great White North. I learned about them back during the aftereffects of the housing crisis and the Great Recession it spawned.
Clearly, the recession had caused vast job losses in the U.S., Canada, Europe, and elsewhere. But I suspected that the rebound wasn’t going to return the world to a sense of normalcy. I suspected returning workers would not find the same caliber of jobs—at the same pay—they’d had before the crisis.
Increasing use of technology to replace workers would see to that (which is exactly what happened).
I figured we’d see lots of financial success among companies specializing in “everyday low prices,” basic apparel, fast food, etc.
And I went hunting for those companies.
Somehow, I ended up on a website from some Canadian investment bank, explaining the virtues of a Canadian Income Trust. Best way to describe them is to imagine a love child born of an illicit affair between a real estate investment trust (a REIT) and a Master Limited Partnership (MLP).
In short, at least 80% of the trust’s pre-tax income must go to shareholders in the form of a distribution. In many cases, Canadian trusts pay those distributions monthly. That provides a great way to generate a more consistent stream of income across the year.
These trusts have become hugely popular in Canada. Most focus on energy assets, real estate, and resources like mining. But a few cater to consumer needs, and that’s exactly what I wanted.
Buy a Burger in Canada and I Get Paid
The trust I found, and which I ultimately invested in, centers on the need for people to fill their bellies a few times a day—a company known as A&W Revenue Royalties Trust
That investment centered entirely on income.
The A&W Trust is what’s known as a “top-line” trust. Anytime anyone spends money at A&W in the Great White North, 3% of that transaction comes right off the top. That money heads to the trust, and ultimately ends up as part of a monthly dividend payment to me.
See, I bought that trust back in spring of 2010, for about $15.00 (Canadian) or so. At the time that was about USD$14.50.
I still own those shares today. More importantly, over the last 13-ish years, I’ve collected more than USD$21 per share in dividends.
Meaning my dividends have paid me nearly 150% of my original cost.
Said another way, because of dividends, I’ve recouped my entire investment, plus another $6.84 per share in cash. Oh, and the share price has more than doubled, underscoring my contention that consistently rising dividends lead to persistently rising share price.
That’s the power of owning high-quality companies paying high-quality dividends tied to goods and services that consumers must have, or will willingly pay for because of their vice-like nature.
I’ve had a number of companies like this over the decades—companies that have paid out more in dividends than I paid to originally buy the shares. In almost all cases, those companies were acquired by larger businesses, precisely because those rich dividend payments indicated that the underlying business was robust. If you can’t beat’em… gobble’em up in an acquisition.
Truthfully, I am hoping my Canadian trust does not get gobbled up. The income is just too good. Based on the annual dividend payments today, my yield on investment is north of 13.3% per year. (And even if you bought it today, you’d still be collecting north of 6%—a nice, plump yield in this environment.)
Like I said at the outset, I know how those Coupon Queens feel getting something for free, plus collecting a bunch of free money as well. Or maybe it’s like robbing a bank—with the bank’s permission.
Either way, we’re living in an income-stock era right now. So, grab’em while you can.