Tuesday, 24 April 2012

Canfor's Complicated Structure & Dividend Woe

Oh Canfor, why do you do this to me? Yesterday, the company announced they will be distributing a dividends of 22 cents (compared to 25 cents in the previous quarter). A little background on Canfor will help grasp a better understanding of the situation.

Canfor Pulp Limited Partnership (CPLP) is what owns two pulp mills and one paper & pulp mill. Canfor Pulp Products Inc. (CPPI) use to own 49.8% of CPLP (CPPI is what currently have a position in). Canadian Forest Products Ltd. (CFP) controlled the remaining 50.2%. Under the terms of the Exchange Agreement made back in January 2011 from all parties involved, CFP exercised its right to essentially exchange its 50.2% interest in CPLP for a 50.2% direct interest in CPPI in early March of this year. This resulted in CFP having a controlling interest in CPPI (with the remaining 49.8% of shares being owned by the old shareholders - like me) while CPPI took 100% control of CPLP. Confused yet? I sure was. Basically this is what happened:


  +         ----------->   CPLP (CFP owns 50.2% & CPPI owns 49.8%)


CFP       ----------->  CPPI (CFP owns 50.2%)   -----------> CPLP (CPPI owns 100%)

The 22 cents was after the fact that CFP waived its right to dividends from cash accumulated from Partnership distributions and not distributed to CPPI shareholders prior to that exchange. This means that next time, we would get an even smaller slice of the dividend pie because CFP will get a piece as well.

I planned to close my position awhile back when CPPI cut its dividends, but I didn't get around to it and now that Canfor has reported a sharp loss in earnings, the share prices have been in free-fall all day. I still plan to sell it eventually, but I feel like I can get a bit more money out of the deal. That's probably my greed talking but I held my position when prices tanked before, heck I even increased my position so I'm comfortable with having the risk for a little while longer.

This Canfor play has actually taught me a lot about investing. I know that I need to do a lot more research on a company and try to understand not only what it does as a business, but how it goes about doing it. I need to know what I'm getting into before I put money in. At least I was aware of the issue early this time right? 

-the Paperboy

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