Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF) will convert from an income trust to a corporation following a unitholder vote slated for June 17. Unitholders will be mailed materials in May.

The good news, reading from the company’s fourth-quarter and full-year 2009 earnings release: “Following the conversion it is anticipated that a monthly dividend of 5 cents (Canadian) will be paid, consistent with PET’s current distribution policy.”

Paramount’s cut-less conversion is extraordinary, given that all of its output is natural gas, the price of which remains stuck under USD5 per thousand cubic feet. I have two takeaways from the move. First, management’s strategy of controlling costs, reducing debt, hedging virtually all output and judiciously investing in new reserves is working.

That much was clear from fourth-quarter results. The company’s payout ratio as a percentage of distributable cash flow was again very low at just 48 percent. Cash flow covered capital expenditures as well, allowing room for substantial debt reduction as well. Further, management has issued 2010 guidance demonstrating how it will accomplish the same, even if gas prices stay where they are now.

Paramount Energy Trust remains my riskiest energy producer play but is a buy up to USD6 for those who don’t already own it. The net asset value (NAV) of its assets in the ground is roughly USD8, well above the current price. I’ll have a detailed analysis in the April Canadian Edge.

The second takeaway is that momentum for preserving dividends with trust conversions is still increasing. Pengrowth Energy Trust (TSX: PGF-U, NYSE: PGH) also announced a cut-less conversion this week, along with solid fourth-quarter results, featuring a payout ratio of just 41 percent. Also a gas-weighted producer, Pengrowth Energy Trust is a buy up to USD10.

That brings the number of no-cut conversions thus far in the oil and gas sector to five, versus one reduction and two eliminations. That, of course, doesn’t mean that every trust will elect to hold its distribution steady. In fact, some management teams still seem stuck on the idea that they have to cut in order to preserve operating cash flow for growth.

Again, as long as a producer trust has solid and undervalued assets under the ground, I’m going to stick with it, no matter what management does on the dividend. No-cut conversions, however, make the process easier and considerably more profitable in the near term.

Note that two other Aggressive Holdings, Ag Growth International (TSX: AFN, OTC: AGGZF) and Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF), also announced solid fourth-quarter earnings this week. Ag Growth has already converted to a corporation and looks for another solid year of growth in 2010. Fourth-quarter cash flow–generally a seasonally weak period–rose 3 percent as the company reported the lowest annual payout ratio in its history at 50 percent for 2009. Buy the maker of grain-handling equipment and beneficiary of burgeoning ethanol demand up to USD36 if you haven’t already.

As for Peyto, it also announced a conversion to a corporation at the end of 2010. Management, however, had no guidance on the post-conversion dividend other than it planned to maintain its current payout at least until the end of 2010.

The gas-weighted producer posted very strong reserve additions last year, with proved reserves increasing 17 percent. The payout ratio is still on the high side at 78 percent, largely because of generally low realized selling prices. But costs continue to decline and the company’s NAV of USD19 is still well above Peyto’s trading price, despite a solid recovery. The distribution’s long-term fate is tied up with gas prices. But this is a very well run company and is still quite cheap. Buy Peyto Energy Trust up to USD14 if you haven’t yet.