"What is the DBRS (formerly Dominion Bond Rating Service)'s Stability of Distribution Rating System for Canadian Income Funds"
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DBRS is a credit rating agency, and divides income funds into five categories:
1. Power income funds
Companies that generate electricity.
2. Pipelines and gas distribution funds
Companies that transport oil and natural gas.
3. Conventional oil and gas income funds
These are companies that own oil and natural gas wells that will someday run dry.
4. Real Estate Investment Trusts
REITs own and operate many various kinds of properties.
5. Infrastructure and other funds
All other business trusts -- energy trusts and income trusts.
The DBRS Rating Agency Makes Its Stability Rankings Based on These Seven Factors:
1. Operating Characteristics
This refers to the basic nature of the business - products, competition, seasonality, regulatory environment and so on.
2. Financial Flexibility
This analyzes the company's amount of debt, sources of cash funds, and how many alternative ways to raise money are available to it.
Company growth is labeled as weak, moderate or strong.
4. Asset Quality
This looks at the age of the company's assets, their nature, the time left before they're depleted or worn out, and so on.
This is important for individual businesses as well as for investors. The more diversified products for sale, the better.
6. Size/Market Position
Trusts with market caps under $400 million are small, those of $400 to $800 million are medium-sized, and those over $800 million are large. But DBRS also looks at a company's size in relation to its market and its competitors.
This includes management, and also the ability of management to obtain new assets, technical and financial assistance. It also includes the management fee structure and the management/fund relationship.
Dominion Bond Rating Service Looks at a Company's Financial Data, Including:
Cash distributions per unit
Cash Flow/Debt ratio
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization
The DBRS Ratings System:
STA-1 -- Superior in a majority of classifications
STA-2 -- Superior in a majority of classifications
STA-3 -- Good distribution stability but may be cyclical and less diversified
STA-4 -- Subject to fluctuations in commodity prices, seasonality, and cyclicality of demand
STA-5 -- Subject to fluctuations in commodity prices, seasonality, and cyclicality of demand
STA-6 -- Volatile and unstable distributions, below average in many or most factors
STA-7 -- Volatile and unstable distributions, below average in many or most factors
DBRS, Inc charges the income trust for these ratings. But DBRS Canada has also issued ratings of trusts on an unsolicited basis. That is, the companies did not ask for, did not pay for, and probably did not cooperate with, their evaluation. These are based on public information. If you check out their website, these unsolicited ratings are marked with a "(p)" by the name of the company.
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