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Discussion Starter #1 (Edited)
Ethos1 had asked about this name in another thread.
http://www.canadianmoneyforum.com/showpost.php?p=3631&postcount=25

Rather than add to that one, thought I'd start a new one.

Is anyone thinking of initiating a position or has done some research into this name? They have a portfolio of over 1.3 million installed water heaters with Direct Energy providing service support to a large percentage of them.

It currently yields 19%+. At first glace this would be a danger signal implying that the trust is in some type of trouble.

Analysts are mixed, given that the company faces headwinds including recent debt refinancing, potential attrition to mounting competition, and expenses from a recent aquired sub-metering business. Their payout ratio has crept a tad over 100%.

Common sense says that this type of business should be fairly recession resistant. The people I know rent their heaters and have no plans switching to purchased units. CWI passes on pricing increases almost unnoticed about 3% annually. This is essentially their growth, with a potential kicker from the sub-metering business (which is having some trouble getting started).

Not a technical analyst by any means, but there appears to be some resistance around $6.50. Just want to see what other members on this board who are more knowledgeable on this name may know. A dividend cut, I believe, is almost a given - I suspect it would be around the 10% mark, to bring their payout ratio back in line.

Disclosure: I did pick up a few hundred shares last week…as usual, price drops right after I bought it. Thinking of picking up some more to finish off a position.
 

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Just looking at Scotia's research and it seems there is some uncertainty about the trust due to a sub-metering issue being looked at by the Ontario Energy Board. That would explain why the chart looks so bad.

There is no time set for resolution but Scotia expects it will work out well and has a one year target of $8.25

Hmmm, maybe I will pick some up for my TFSA to go along with ep.un that I bought today - also with a yield of around 20%....
 

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Discussion Starter #3
Yes, TD Newcrest rates it as buy as well. With a 12 month target of $10. They expect the sub-metering issue to work itself out, to be in alignment with the Government's "Green Energy Act". CWI.UN has grown it's payout the last few years:

Dividends per Share $ 1.29, 1.28, 1.19, 1.12, 1.07, 1.05, 0.05, from 2008 back to 2002 - so you know management is committed to passing on profits.

However, a dividend cut is almost certain, with payout >100%. How much is the question.

Standard's & Poor's considers it a stable business, although the report is a couple year's old, the business model hasn't really changed, other than the fact that new home constructions have slowed down:
http://www2.standardandpoors.com/portal/site/sp/en/ca/page.article/2,2,3,0,1145770208720.html .

A rather compelling situation - good candidate for my TFSA, had I not filled it up with pipelines already. I do have a few hundred shares already in my non-RRSP account.

Someone chime in if they know something we don't....
 

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Is anyone thinking of initiating a position or has done some research into this name? They have a portfolio of over 1.3 million installed water heaters with Direct Energy providing service support to a large percentage of them.

It currently yields 19%+. At first glace this would be a danger signal implying that the trust is in some type of trouble.

I bought some near the beginning of 2008 when it looked like a nice, stable way to ride out the chaos that was beginning to brew. I bought some more in early April, once again demonstrating my incredible ability to pick the only stocks not participating in a massive rally.

So with that history take the rest of what I have to say with a grain of salt :)

Basically, I agree with you: it's a stable, mature business. There are lots of people that rent their waterheaters, and the company has been responsive to upgrading those who want more energy-efficient ones like tankless, etc.

The payout ratio is really high, and I fully expect that they will cut the distribution by approx 30% when they become taxable, which would ~14% return on the current price, which I'm more than happy with. Even cutting the distribution in half would leave it as not a terrible way to park some money for a few decades.


Yes, TD Newcrest rates it as buy as well. With a 12 month target of $10. They expect the sub-metering issue to work itself out, to be in alignment with the Government's "Green Energy Act". CWI.UN has grown it's payout the last few years:
Political risk is always a nasty one to gamble on, but in this case I have to agree that the sub-metering issue has got to come around positively for them -- it just doesn't make any sense to push on the one hand for smart meters and time-of-use pricing for electricity in SFH and condos, and then prevent sub-metering of apartments.

Also, there has been some insider buying at <$7. No insider sales so far.
 

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I would expect that any distribution cut would not negatively affect the stock price. That would already be factored in just like it was with ylo.un

I could live with a good potential stock appreciation and a good distribution even after a future cut...
 

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Discussion Starter #6
The payout ratio is really high, and I fully expect that they will cut the distribution by approx 30% when they become taxable, which would ~14% return on the current price, which I'm more than happy with. Even cutting the distribution in half would leave it as not a terrible way to park some money for a few decades.

Also, there has been some insider buying at <$7. No insider sales so far.
They took a bit hit, when the refinanced high on some debt in Feb. 2009 - pretty well the worst time of the credit crisis. This will drag on their earnings for a while. They will be forced to cut distributions for sure. Agree with you that even a 50% cut (very unlikey) would be acceptable for a well run business like this. TD Newcrest shows $800,000 insider buying last year. No indications of selling. Stock is still falling however...watch out for the proverbial falling knife.
 

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Discussion Starter #7
Picked up a few more shares in the low 6.50's. Appears to be a wall of bids sitting ~ $6.48 - 6.50. Be interesting to see if it breaks through that. Perhaps a psychological barrier there as it represent a 20% yield ... unbelievable for a utility-like company. Thanks for everyone's input....:).
 

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Discussion Starter #9
I bought some this morning as well...
Yeah, it's a sucker's yield and I couldn't resist it ... probably teach me a lesson with a 50% chop.

Should the yield stay like this for a while, this is the kind of situation where you would not want too much capital appreciation at the start of your hold. Put your position under dividend reinvestment and your shares will mulitply like rabbits.
 

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Yeah, it's a sucker's yield and I couldn't resist it ... probably teach me a lesson with a 50% chop.
Have you considered giving the CFO at CWI a call to ask him about the metering business, the monthly payouts if they will be reduced and/or when they will turn from a trust back to a corporation

If I was a shareholder I certainly would, that way it stops the guessing

disclosure: I am not a shareholder of CWI.UN
 

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Discussion Starter #11
Have you considered giving the CFO at CWI a call to ask him about the metering business, the monthly payouts if they will be reduced
Think about this for a minute....do you really think the CFO will tell me: "Yes, I'm gonna cut your payout any day now" :p.
 

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Think about this for a minute....do you really think the CFO will tell me: "Yes, I'm gonna cut your payout any day now" :p.

He/she should be willing to talk to you because they all work for you if you're a unit holder. Odds are you won't make it past the receptionist though...
 

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Think about this for a minute....do you really think the CFO will tell me: "Yes, I'm gonna cut your payout any day now" :p.
on this one, you never know till you try

BTW, the phone number of the CFO at CWI is listed on the company news releases is a direct line - I dialed it so I know

You can also email the guy

disclosure: I do not own CWI.UN

BTW, the attitude of an investor that thinks they cannot talk to corporate exec's should not be investing in stocks that they may think will get cut 50% - that is utterly reverse thinking

as well as investing based on historical financials is also another reason not to invest in some of those companies
 
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