Once upon a not so long ago, there was a big, bad wolf in Ottawa that liked to sleep a lot. That was, when it wasn’t eating. When the wolf was happy and with a full belly, sheep could graze around it peacefully. But there was something peculiar about the wolf when it was hungry. This particular wolf didn’t have to hunt for food. All it had to do was raise taxes and the food would come to the wolf. You guessed it, the big, bad wolf is Ottawa’s Tax Man, and the latest item on the “wolf’s” menu are income trusts.
But, there is one item in the latest endangered “food group” not afraid of the big, bad wolf–Yellow Pages Income Fund! While other income trusts in Canada are pulling their hair out (wool, feathers, what have you!), Yellow Pages hiked its annual distributions by six percent, even though that means that in four years time, it will have to pay that much more in taxes.
While others may think it a form of delayed financial suicide, Yellow Pages considers this move as a clear vote of confidence in its own future prospects. The trust came online in August 2003 and has a habit of periodically reviewing its distribution policies. Even after Finance Minister Jim Flaherty took the phrase “trick or treat” to a whole new level on Halloween, Yellow Pages regrouped really quickly, stating confidence in its credit and financial stability ratings.
This means that Yellow Pages has faith in its ability to continue generating free cash flow, even after distribution taxes are factored in the payout equation. Perhaps this confidence is coming from the fund’s expansion plans on national and local levels, especially after the company recently acquired MTS Media.
All I have to say is that it is refreshing to find an income trust that is not whining about taxes and pledging to fight the lost battle. Everyone knows the cliché there are only two things certain in life: death and taxes! Canadian income trusts knew this day would come, (I mean the day when their snug tax situation would change for the worse). They just didn’t expect it now, considering PM Harper’s election promises. But promises be darned, life goes on, and income trusts that find their compass quickly will be the ones that have a chance of prospering in the years ahead. So far, Yellow Pages appears to have accepted the altered course it is on.