Monday, February 04, 2008
Changes to Eveready Income Fund (EIS.UN)
"Eveready’s Board of Trustees has unanimously approved amendments to the Fund’s distribution policy to maximize the retention of operating cash flow to re-invest in growth. Eveready’s current monthly cash distribution of $0.06 per unit ($0.72 per unit on an annualized basis) will be eliminated and replaced with a quarterly “in-kind” distribution of $0.18 per unit ($0.72 per unit on an annualized basis). Distributions settled “in-kind” means that unitholders will receive additional Fund units instead of cash. “In-kind” Fund units will be issued at a deemed price equal to the volume-weighted average price of all units traded on the Toronto Stock Exchange on the ten trading days preceding the applicable record date. Eveready anticipates that the next distribution will be paid on or about April 15, 2008 to unitholders of record as of the close of business on March 31, 2008."
In summary, they have made the reinvestment of distributions mandatory for all shareholders. They have also eliminated the 5% discount and will now purchase the shares using a 10-day average price. Finally, they have changed the payment period from monthly to quarterly with the unit distribution amount staying the same. As such, I have changed Eveready's record on the DRIP list of companies to reflect that distribution reinvestment is now mandatory and that the discount has been removed.
Eveready is the first company that I have heard of that has gone to this type of mandatory dividend reinvestment program. This is how the company explained the move: “The market has been sending us a strong signal that our current distribution policy is not the most effective use of our cash,” comments Peter Lacey, Eveready’s Chairman of the Board. “We concur and believe that reinvesting the Fund’s cash in growing our business will maximize Eveready’s long-term value. Essentially, our new distribution policy will provide the benefits that a corporation enjoys of being able to reinvest its profits in growth, yet retains the positive flow-through tax characteristics of an income trust until our likely conversion to a corporation in 2011.”
The last line makes reference to the Canadian government's implementation of taxes on income trusts starting in 2011. (More info here: Canada’s New Government Announces Tax Fairness Plan) Eveready might be the first of many income trust funds in Canada to reduce or remove their distributions so they can stockpile money for the eventual tax hit once they change to a corporation.
Full information of Eveready's announcement can be found here: Eveready Income Fund Announces 2008 Growth Plans and Approves Strategic Changes to Distribution Policy
Great prices on Brand New business books!
Do you know of any canadian funds that offer a discount on optional cash payments, and not just dividend reinvestment?
Woudl be nice to have a small group of these for an investment program.
Off the top of my head I cannot think of any. Discounts usually just apply to the re-invested dividend portion of a DRIP. If any of our intrepid readers know of any please feel free to weigh in.