Good morning Lou,
I have been tracking Boyd Group for some time. They are making quite a few acquisitions all through North America. Management looks strong. What is your take on long-term growth and a sustainable dividend?
Thanks for the assignment. Boyd Group Income Trust is an interesting case of a management team that found a way to continue to operate as an income trust and increase its distributions to unit holders. Over the years BYD.UN has developed a profitable footprint in the United States. They use cash generated south of the border to pay unit holders their monthly distributions. Those funds are not subject to the tax revisions embodied in the provisions announced on Oct. 31, 2006 by the Harper government. You have to love it when aggressive branding cuts both ways.
Another internal restructuring announced by the company is that they intend on transfering allowable tax deductions to their U.S. operations, where they pay higher tax rates. This move also provides the company with additional cash. Currently BYD.UN offers a yield of 4.4 per cent on a payout ratio of 24.7 per cent.
The charts will tell the tale of where this trust has been and where it might be going.
The three-year chart provides a textbook example of a strong advance with some challenges but no breaches of support. The move from the December 2008 lows at $2 has provided ample rewards for investors who rode through the rough patch in mid-2010 when the units tested support along the 200-day moving average.
The six-month chart depicts the move higher in late March of 2011 on the anticipation and reporting of fourth-quarter results, which took the units over $9.40. The MACD generated a buy signal on March 21, 2011 when BYD.UN was trading at $8.25. A 14.5 per cent capital gain in less than three weeks is attractive to say the least but does suggest that the units have gotten ahead of themselves and are likely to pull back a bit.
BYD.Un is in the profitable segment of auto repairs servicing the needs of the auto insurance industry. They are growing through acquisitions and focus on deals that are accretive to earnings. The fact that their management team found a way to increase their distributions to unit holders is a tribute to their inventiveness and creativity. Those factors alone should give you some comfort as for the long-term prospects for this trust.
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