"How are Canadian Income Trusts Rated"
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The main attraction of Canadian income funds is the income they pay out to unitholders, so stability of distributions is the main factor to look for.
This may also be expressed as the number of distributions.
Of course, if a company is an IPO (Initial Public Offering) as a business trust, it has no history of distributions to examine, and therefore you must look at its corporate history to evaluate whether or not it's a trust worth buying units in.
For that information, go to: SEDAR -- the System for Electronic Document Analysis and Retrieval, set up by the Canadian Securities Administrators (CAS).
Two companies rate the stability of distributions of Canadian trusts: Standard & Poor's (S&P) and DBRS (formerly Dominion Bond Rating Service)
Standard & Poor's first developed its stability rating in 1999, with the express purpose of giving investors a way to evaluate income trusts on an apples to apples basis, at least so far as distributions are concerned, which is the main reason for investing in Canadian funds.
It's important to understand that stability ratings are not the same thing as credit ratings. Trusts are supposed to pay their debt service before making distributions to unit holders, but how much they pay to holders is not the same thing as an indication of its overall credit-worthiness. Nor are these ratings the same as a bond rating.
Also, these ratings are a profit center for Standard & Poor's and DBRS. That is, the trusts must pay these companies to get rated. Not all income funds have chosen to pay for ratings.
If a given Canadian fund is not rated that could indicate it is very new, that it's so popular with investors that it sees no need to shell out money for a stability of distribution rating, or it doesn't want its finances examined too closely.
What is the Standard and Poor's stability of distributions rating system.
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