Fording Canadian Coal Trust (fdg)

[SeriousMoney]

Coal's Cash Cow
Forbes.com, John Dobosz, 11.09.05, 11:35 AM ET

Jack Adamo, editor of Insiders Plus newsletter, recommends buying units of Fording Canadian Coal Trust. The Calgary, Alberta-based owner of coal mining and processing properties throughout Canada operates as an open-ended mutual fund.

Fording (nyse: FDG - news - people )distributes most of the income it receives from its mining interests as dividends to unit-holders. Based on annualizing the most recent payout, Fording yields 17.3%. But if you figure yield by totaling the past 12 months of payouts, the stock yields a lower 7.5%. Fording’s payout ratio is 48%.

“It holds interests in coal and other mineral mines, but primarily in Elk Valley Coal, the world's second-largest exporter of metallurgical coal,” says Adamo. “Metallurgical coal, or coking coal, as it is also called, is the extremely hot-burning coal used in the manufacture of steel. As such, it is highly correlated to economic cycles, and is, therefore, vulnerable to recessions.“

Adamo notes that the cyclicality of the business will affect the size of the payout from year to year, but that Fording shares should continue to provide a yield that “ranges from better than bonds to better than almost anything.” Adamo expects dividends in the coming year to produce a yield between 9% and 12% at today’s price.

Fording closed on Tuesday at $35.28 per share, up 59% over the past year, but down 21.8% from its 52-week high of $45.15 on Sept. 12. After falling nearly 30%, Fording found support at $32 last week and bounced 10% higher. Last Friday, Fording closed at its high for the week, and back above its 200-day moving average at $34.60.

In a recent release, Fording announced that on a year-to-date basis, cash available for distribution was $474 million (Canadian), or $3.23 per unit, compared with $121 million (84 cents per unit) in 2004--more than 290% higher. In the past 12 months, Fording produced net income of $577.6 million on revenue of $1.4 billion and $430.5 million in cash from operations.

“The company has a strong balance sheet, super interest coverage and excellent cash flow,” says Adamo. “I expect these shares to outperform the market on a total return basis for the rest of the decade.”

Adamo recommends buying Fording Canadian Coal Trust up to $37 for income portfolios.

Click here to watch a video with more on Fording Canadian Coal. http://www.forbes.com/video/?video_url=http://www.forbes.com/video/fvn/guru/jd_fdg110905&id=jd_f....

http://www.forbes.com/investmentnewsletters/2005/11/09/fording-coal-adamo-in_jd_1108gurusow_inl.html....