AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF) had three major announcements for investors last week: first-quarter earnings, a major acquisition of midstream natural gas assets and the schedule and dividend policy for its planned conversion to a corporation.

Starting with No. 3, management now plans to put its conversion proposal to a unitholder vote at a June 3 special meeting. Assuming the move is approved by at least two-thirds of outstanding units, the conversion will take place July 1. The exchange will be 1-for-1 (one common share per trust unit currently held) and will be a tax-deferred transaction. That means no taxes will be due, and investors’ cost basis will remain the same for the new shares as it was for the trust units.

As for the distribution, it will be reduced from the current monthly rate of CAD0.18 per unit to a new monthly rate of CAD0.11 per share. That equates to an annualized rate of CAD1.32 per share, which is on the high side of the range management had previously announced of CAD1.10 to CAD1.40.

The last monthly payment at the old rate will be made July 1. The first payment at the new rate will be August 15 and will continue on a monthly basis. From that point on, Canadians will be taxed at the lower rate assessed to common stock dividends. US investors will continue to be withheld at a rate of 15 percent in Canada for shares held in taxable accounts, but will no longer be withheld from IRAs and other tax-deferred accounts.

Based on AltaGas’ price this morning, the dividend yield on the new rate is about 7.7 percent. Management expects to increase that going forward as it puts into place some CAD2 billion in gas and power projects over the next five years, financed in large part by the cash flow saved from the distribution reduction.

Projects include a build out of midstream asset capacity in the rapidly growing Montney shale region, a planned 28 percent increase in gas distribution rate base and some 277 megawatts of hydro projects slated for completion from 2014-16. Concurrent with earnings, the company announced the purchase of a sour gas plant for CAD28 million in the Montney area, anticipated for startup in the fourth quarter of 2010.As for first-quarter results, AltaGas’ operating income of CAD49.5 million was slightly lower than last year’s CAD52.5 million, as power prices in Alberta sank to their lowest levels in years and producer activity in the Western Canada Sedimentary Basin remained depressed. Field gathering and processing, however, saw a third consecutive quarter of improving activity and volumes, and asset expansion continued to put the pieces in place for faster growth as energy patch growth resumes.

Cash flow per share was flat at CAD0.81 per unit, while funds from operations (FFO) per unit slipped to CAD0.63 from CAD0.75 a year earlier. That was in part due to a higher number of outstanding shares to finance growth. FFO covered distributions with a payout ratio of 85.7 percent.

As a business, AltaGas’ strategy will be the same as a converted corporation as it’s been as a trust: It will continue to operate a portfolio of fee-based assets in natural gas and power and to grow that base over time with a combination of low-risk construction projects and acquisitions.

The company will face corporate taxes starting in the second half of 2010 but will enjoy many ways to avoid their full impact. One, for example, is the CAD23 million in non-cash amortization expense it took in the first quarter, which will rise over time as assets increase. Consequently, the bulk of the cash saved from the distribution cut will go to funding growth without issuing new shares or borrowing, which will increase profitability over the next several years while reducing financial risk.

As for the distribution itself, AltaGas is basically going back to the rate it paid in early 2004. The units have been all over the map in recent months. But the reduction to an annualized rate of CAD1.32 per share does appear to have been already reflected in the share price and high percentage yield, which has been well over 12 percent.

As CE readers know, I’m no fan of distribution cuts. And like the 35 percent reduction at Davis + Henderson Income Fund (TSX: DHF-U, OTC: DHIFF) announced in early March and slated for the end of the year, my view is AltaGas’ move is very conservative.

On the other hand, however, the new rate is sustainable in any economic environment. The assets are solid, and the freed up cash will reduce financial risk and spur growth. And management has been up front about its plans, announcing the future dividend range months ago. The fact that deeper cuts weren’t made is a testament to AltaGas’ dedication to paying a generous dividend for the duration, as well as to the fact that its operational performance has beaten internal expectations.

Finally, the dividend rate itself remains attractive at current rates, particularly for US IRA investors and Canadians who hold the units in taxable accounts. And it’s certain to be increased going forward as the company continues to add valuable fee-generating assets. US investors get the added benefit of a dividend paid in Canadian dollars, and as an equity meaning no special tax filing requirements such as a Form K-1.

In short, AltaGas remains an attractive holding for conservative growth and income investors. Those without a position should take advantage of any near-term weakness in the wake of the conversion announcement and buy AltaGas Income Trust up to USD18.