Provident Energy Trust (TSX: PVE-U, NYSE: PVX) has now announced its plans to convert to a corporation. The company will make its move on Jan. 1, 2011. Unitholders will receive one common share of Provident Energy Ltd for every trust unit they now hold.

As expected, the move comes with a distribution cut, from CAD0.06 per unit per month to CAD0.045 per share per month. That equates to a yield of 7.5 percent based on Provident’s current unit price.

This is the last major move for Provident in a restructuring process that began several years ago with the divestiture of its US operations. Earlier this year the company spun off its oil and gas production arm and combined it with Midnight Oil & Gas to form Pace Oil & Gas (TSX: PCE, OTC: MDOEF). Provident unitholders received 0.12225 shares of Pace in that deal, which was concluded July 9.

The current company is now purely a provider of midstream energy services, with a focus on the natural gas liquids (NGL) infrastructure and marketing business. The core business is fee-based, generating stable income from a range of high-quality producers and sellers of energy. That’s augmented by an energy marketing arm, which leverages the infrastructure assets.

The new dividend level will bring the payout ratio back to a manageable level–it had exceeded cash flow in recent quarters. It will also permanently absorb any new taxes faced by Provident as a corporation beginning in 2011 and it will conserve sufficient cash flow to fund organic growth of the company’s existing assets. The company also has CAD900 million in tax pools with which to defray future taxes.

The swap from trust to corporation will be a non-taxable event in management’s opinion. And unlike the conversion of Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF) completed this week, it shouldn’t involve any chance of symbols. US investors holding Provident in IRA accounts will no longer be withheld the 15 percent tax by the Canadian government, once the conversion has occurred.

Looking ahead, this conversion announcement removes the last uncertainty surrounding Provident Energy Trust. That earns it the company an increase in its CE Safety Rating from 3 to 4. I’m going to keep the stock in my Aggressive Holdings at least for now, however, as there’s still commodity price exposure relating to pricing spreads for NGLs.

All told, this initial reduction in the distribution upon conversion is well within expectations. I would expect to see some appreciation in the units in coming weeks, though some disappointed income investors may cash out in the immediate term. Management has numerous opportunities to expand income going forward, meaning dividends are likely to rise in the coming years. And as a large pure play on NGLs, there’s some takeover appeal here as well.

Adding back in the current per unit value of the Pace spinoff of about USD0.93, Provident unitholders have realized a solid return of 34 percent-plus this year. I look for perhaps slower but more reliable gains in the years ahead for what’s now a fairly conservative way to play an undervalued sector.

Provident Energy Trust remains a buy up to USD8. Continue to hold Pace Oil & Gas, which is likely to benefit from strengthened oil prices going forward and trades at a sharp discount to the value of its energy reserves.

The only CE Portfolio Holdings not to declare post-conversion distributions now are ARC Energy Trust (TSX: AET-U, OTC: AETUF), IBI Income Fund (TSX: IBG-U, OTC: IBIBF) and Parkland Income Fund (TSX: PKI-U, OTC: PKIUF). I expect news for all three in the next month as they announce third-quarter numbers.

One final note: Colabor Group (TSX: GCL, OTC: COLFF) has announced its fiscal third-quarter earnings. Highlights included a slightly higher payout ratio of 89 percent of cash flow for the period, due mostly to the loss of a major contract in the restaurant sector at the beginning of Feb. 2010. The company continues to work to mitigate the loss of revenue but still faces generally tough conditions in its industry.

On the bright side, the company continued to successfully execute its growth through acquisitions strategy and reduced debt to just CAD9.2 million drawn on a bank credit agreement of CAD20.5 million. Debt is now just 0.4 times full year cash flow, and the company has been vigilant cutting operating costs as well.

The results triggered some selling in the stock today. At this point, however, there’s no real cause for concern, as the balance sheet stronger than ever and management states “cash flows from operating activities and the funds from operating credits are sufficient to support planned capital expenditures, working capital requirements (and) quarterly dividends of 26.91 cents Canadian per share.”

Business likely won’t be robust until growth picks up in the Canadian restaurant and foodservices business, where actual growth shrank by 4.7 percent for the 12 months ended Sept. 30, 2009, according to the Canadian Restaurant and Foodservices Association (CFRA). Encouragingly, CFRA states growth turned positive by 0.7 percent in the last 12 months. But the company’s customers are still playing it conservative, particularly given forecasts for slower growth ahead.

Looking ahead, Colabor expects to be able to offset this weakness and realize growth through cost cutting and timely acquisitions. And the RTD purchase completed Sept. 21 will add CAD112 million in annual sales, providing numerous opportunities for synergies. That augurs continued good health despite the tough conditions. I still rate Colabor Group a buy up to USD12.

Editor’s Note: For additional information on this topic, check out Roger Conrad’s latest report on Top Canadian Income Trusts.