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    Income Trusts: What exactly are they?
    Posted: 2012-07-24 05:00:54


    Investors are always looking to get the highest returns for their money for the least possible risk. Back in the 1980s, finance professionals realized that substantial cash flows had been generated by mature oil & gas properties, but could not be accessed by retail investors. This insight led to the realization there was an opportunity to create a new investment vehicle that could generate substantial returns for a relatively low risk. As a result, the income trust was born.

    An income trust is exactly what it sounds like. It is a trust, holding income-producing assets for its investors, who are the beneficiaries. Investors buy income trust units (which are often traded on stock exchanges) and put their moneys into the trust. The trust, then, buys assets. These assets can be airplanes, oil & gas properties, real estate or any other cash-generating asset. For example, a trust may be set up to run an airline. This trust would sell income trust units to investors (like you and I) and buy airplanes. Then, once airplanes start flying and generating positive cash flows, the trust would pay out them to investors. The investors, thus, are in a favourable position to receive constant cash payments (like dividends) for their investment. However, many of these payments are not fixed like in bonds.

    Here are some other interesting facts about income trusts. If you are looking to save for retirement or build an income portfolio for your next generation, income trusts are definitely investments that should be considered.

    • There are about 200 income trusts in Canada

    • They provide high-yield cash yield. About 70% of the cash generated by income trusts is returned to investors.

    • In 2004, income trusts reached about $118 billion in capitalization.


    Source: Certified General Accountants

    Some of the largest income trusts:

    1. RioCan Real Estate Investment Trust

    2. Inter Pipeline Fund

    3. H&R Real Estate Investment Trust

    4. DundeeReal Estate Investment Trust

    5. BrookfieldRenewable Energy Partners

    6. Calloway Real Estate Investment Trust

    7. Primaris Retail Real Estate Investment Trust


     

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