Earnings season finished with a bang for Canadian Edge Portfolio companies. No fewer than 10 Conservative Holdings and seven Aggressive Holdings turned in numbers this week.

In addition to the usual analysis of dividend safety, financial strength and business growth, I paid a lot of attention this time around to market value questions. Mainly, do these numbers justify the surge in share prices we’ve seen since summer, and possibly higher buy targets? Or are we simply looking at a market dominated by yield chasers that’s pushing share prices to levels that at least for now aren’t really justified?

Happily, all of our Portfolio companies continue to stack up well as businesses, posting solid measures of dividend safety and financial strength while sowing the seeds for future growth. That includes the few whose headline numbers missed analyst projections for the quarter.

As for valuation, as of this morning 19 Canadian Edge Portfolio selections–ranging from energy producers to pipeline operators–traded below their buy targets. That means the combination of growth, income and safety they offer is still being underpriced by today’s market. That’s plenty of stocks to build a portfolio on if you’re starting out. And it’s plenty to choose from if you’re looking to add to positions as well.

That does leave more than a dozen recommendations that trade above a level I’d consider real value. Some of them, including Aggressive Holding Ag Growth International (TSX: AFN, OTC: AGGZF), came in with blockbuster numbers. Ag Growth, for example, bumped up its dividend 18 percent. The problem is investors are already expecting this kind of good news, and very likely a lot more.

As a result, Ag Growth has barely moved this week in response to its extremely bullish business news. In fact, several Bay Street analysts actually cut their rating on the stock this week, not because they didn’t like it prospects but because they’ve become increasingly cautious on price.

This week we actually got a taste of what can happen to a strong company’s stock when over-hyped expectations are disappointed. Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF) shares had been on fire since summer, pushing well above my buy target for several months. Then came third-quarter earnings that supported the dividend and financial strength, even while pointing the way to a recovery of the company’s oil sands business.

The quarter’s headline earnings number, however, was well below what the Bay Street consensus. As a result, the stock had one of its wildest days ever on Nov. 9, gapping down and plunging below USD29 at one point before rallying back to the USD32 to USD33 range.

I suspect one reason for the volatility was a large number of trailing stop-losses in place that were executed at once. I continue to urge investors to avoid using stop-losses, as they actually add to risk rather than lessen it. Those who used them on Bird, for example, were likely sold out at least USD4 to USD5 below where the stock closed.

Moreover, despite this bad number Bird remains a very strong company. The dividend is in no danger, and the cut-less conversion to a corporation on Jan. 1 is still on track. In fact, I look for a return to dividend growth as activity in the oil sands region revives.

Best off are those who put in buy orders at a dream price for Bird around the Flash Crash lows in May and have patiently waited to establish a position at deep value. They’re now sitting with a great company with a high, solid yield and great growth potential.

I expect all Portfolio companies to eventually justify much higher share prices than what we see today. But as the Bird example shows, patience will almost always yield better entry points. And there are plenty of alternatives besides when a train really has left the station.

Here’s the roundup of reporters, starting with the Conservative Holdings. Almost all companies not reviewed below are highlighted in the November CE, with the exception of Colabor Group (TSX: GCL, OTC: COLFF), which reported its third-quarter earnings in time for the October issue. Also, Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF) and Perpetual Energy (TSX: PMT, OTC: PMGYF) were highlighted in a Flash Alert sent earlier this week.

Parkland Income Fund (TSX: PKI-U, OTC: PKIUF) will hold its conference call on Monday morning, Nov. 15. I’ll have one more earnings Flash Alert early next week. I expect management to not only announce third-quarter results but also to nail down its post-crash dividend rate. It’s already set a range of 75 to 110 percent of the current rate of 10.5 cents Canadian per month. That ensures a yield of at least 7.7 percent based on Parkland’s current price, or as much as 11.3 percent. As a result, the worst-case is well baked in and there’s upside for anything else. My buy target for Parkland Income Fund remains USD13.

Conservative Holdings

Artis REIT (TSX: AX-U, OTC: ARESF) will bring its asset management in house over the next year. That should provide another spur to the REIT’s growth, even as its portfolio gains strength from improving property market conditions in western Canada.

Third-quarter revenue surged 17.1 percent sequentially and is up 51 percent over the past year. Occupancy rates rose to 97.8 percent from 96.6 percent at the beginning of the year, as the REIT expanded its base of income-producing properties to CAD1.84 billion, up from CAD1.19 billion at the end of 2009.

Funds from operations (FFO) and distributable cash flow rose 9.5 and 7.2 percent, respectively, from second-quarter levels. Dilution from equity issues pushed down per-unit totals and pushed up the payout ratio to 96.4 percent of FFO and 100 percent of distributable income. That increase, however, should reverse in coming quarters, as dollars raised are invested.

The massive investment of the past year has also diversified Artis geographically as never before, reducing exposure to the still slack Calgary market and enabling the REIT to capitalize on strength in other regions. The company has also taken a stake in several US properties, with the goal of eventually collecting 15 percent of overall rents from that market.

Artis’ units have backed off from recent highs, following the release of numbers. Now yielding closer to 9 percent again, it’s a good time for those without a stake to pick up some units. My buy target for Artis REIT remains USD14.

Atlantic Power Corp (TSX: ATP, NYSE: AT) increased cash flow 15 percent in the third quarter, as management affirmed a target of CAD75 million to CAD80 million in cash distributions from projects in 2010. The company has again extended the date to which current dividends can hold even if there are no acquisitions or organic growth to 2016. That’s in part thanks to the addition of the company’s 27.6 percent stake in the Idaho Wind project, the purchase of a Michigan biomass plant and progress on a biomass plant in Georgia constructed by the Rollcast Energy unit.

Cash available for distribution rose 14.6 percent in the quarter, bringing the payout ratio down to just 65 percent. That keeps the company on track for a full-year 2010 payout ratio of roughly 100 percent, as it invests recently raised debt and equity financing in growing the business. That will come down as cash flows from the biomass plants and Idaho Wind start to roll in next year, providing still more funds for growth.

Meanwhile, management continues to remove risks to cash flow, inking new natural gas swaps to fuel its Orlando plant when the current fuel contract expires. These will also boost cash flow, because they were executed at a lower cost. Atlantic’s capital spending plans and expectations for a high payout ratio into 2012 likely rule out a dividend increase in the near future. The stock still yields right around 8 percent at its current price. But I’m not raising my buy target for Atlantic Power Corp above USD13.50 at this time.

Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF) held construction levels steady with year-earlier levels and at the same time boosted its backlog to CAD1.163 billion. Both are exceptional achievements, given the continued slump in private sector business and the builder’s reliance on public contracts. Overall revenue grew 2 percent in the third quarter. The need to bid on contracts against tougher competition did have an impact on profit margins and hence net income, which slipped from CAD1.02 to CAD0.61. That was still enough to cover dividends comfortably, however, with a payout ratio of 73.7 percent.

Looking ahead, margins are likely to remain under pressure in 2011, as the volume of work in the industrial sector and Alberta oil sands remains weak. The latter, for example, aren’t expected to deliver a meaningful recovery until 2012. The good news is this is about as bad as things are likely to get, and the company is still covering its payout solidly. The company has no long-term debt and was able to increase its working capital to CAD142.5 million by the end of September, up from CD122.2 million at the beginning of the year–a solid indication of financial strength.

Apparently, some investors were disappointed in the result, as the stock had an extremely volatile day on Tuesday when they were announced, plunging from over CAD38 to a low of CAD29 before settling in the CAD33 to CAD34 per unit range. That’s given would-be buyers of Bird Construction Income Fund another chance to get into a stock that had been trading well above my buy target of USD35. Note the monthly dividend will become quarterly when the trust converts to a corporation on Dec. 31, at the same annual rate of CAD1.80 per share.

Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF) simultaneously announced two pieces of good news this week. First, it entered an agreement to buy a 166 megawatt (MW) wind power project in what was essentially an asset drop-down from another unit of parent Brookfield Asset Management (TSX: BAM/A, NYSE: BAM).

The unit is under construction and is near the already operating Gosfield Wind Farm. All output will be sold under a 20-year contract to the Ontario Power Authority when the unit commences operations, expected for late 2011. That will bring Brookfield’s wind capacity to over 400 MW.

Though wind generation is variable, cash flow is generally steady, as it’s based on capacity payments. In contrast, hydro power–which comprises the bulk of company generation–does vary with water flows. Below-average inflows in Ontario and Quebec more than offset better generation in New England and British Columbia, resulting in overall generation of just 881 gigawatt hours (GWh) versus a long-term average for company facilities of 1,540 GWh.

The result was a 33 percent drop in third-quarter revenue and a steep plunge in income before non-cash items–the account from which dividends are paid–to just CAD0.03 per unit. The payout ratio based on the first nine months of 2010 is now 121 percent. Fortunately, there’s no pressure on the dividend, even with corporate conversion still likely sometime in 2011.

The company has deep cash reserves, the ability to adjust sustaining capital expenditures to cash flows and even insurance when water flows are less than 90 percent of long-term average. As a result, it’s easily able to absorb the effect of volatile water flows, even as it continues to build out its valuable asset base. In addition, water flows thus far in the fourth quarter are moving closer to normal, even in eastern Canada. That suggests a more under control payout ratio in the near future.

Management has delayed Brookfield’s planned conversion to a corporation to consider its options. There will be no impact on unitholders, however, as the fund won’t be taxable in 2011. Management does expect to pay on a quarterly rather than a monthly basis starting in the second quarter, but at the same annual rate. That’s a yield of more than 6 percent, with the likelihood of 10 to 15 percent annual returns to mid-decade and beyond based on projects in progress. Buy Brookfield Renewable Power Fund up to USD20.

Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF) turned in another steady quarter, as a 5.3 percent boost in normalized FFO pushed the payout ratio down to just 74.5 percent. Operating revenue rose 4.9 percent on a 2.6 percent increase in average monthly rents and a rise in occupancy from 98.4 to 98.7 percent. Net operating income (NOI) rose 6.8 percent with margin rising to 58.7 percent, indicating rising profitability at existing properties.

The company also refinanced CAD60 million of mortgage debt on its properties at an average interest rate of 3.03 percent and locked in low prices for 85 percent of its winter natural gas needs, required to provide heating for tenants at its properties. And the REIT added properties in British Columbia and sold others in Ontario, further enhancing geographic diversification while boosting overall portfolio quality.

Average rents rose in every region except for Alberta, where the market is still hurt by overbuilding of past years. Revenue from suite turnovers rose 1 percent, versus a decrease of that size last year. Operating expenses as a percentage of revenue were cut to 41.3 percent, from 42.3 percent a year earlier, and debt service coverage ratios improved as well.

Despite the strong coverage numbers, management continues to show little inclination to raise the dividend. Rather, available cash is more likely to be used to make acquisitions or pay off more debt. Consequently, I’m not inclined to raise my buy target for CAP REIT above the current USDS17 at this time. But the REIT and its safe yield of 6.4 percent–paid monthly–are a buy anytime it trades below that.

Cineplex Galaxy Income Fund (TSX: CGX-U, OTC: CPXGF) third-quarter revenue picked up 4.5 percent on a 0.7 percent increase in attendance over year-earlier levels and by improved concession sales. Cash flow margins rose to 20.5 percent of revenue from 18.3 percent a year ago, while distributable cash flow per unit surged 13.9 percent to 76.3 cents Canadian for the quarter. That took the payout ratio down to just 41 percent for the quarter, from an already low 47 percent a year earlier.

The company continued its project of making its theatres digital and 3-D ready, as well as enhancing its other offerings to boost revenue per customer. Ultimately, strong results depend on the quality of the movie lineup. The good news is, although summer fare was less than spectacular it was strong enough to provide strong cash flow and dividend coverage. Meanwhile, the long-awaited next installment of the Harry Potter series promises a strong finish to the year.

The trust still plans a no-cut conversion to a corporation in early 2011. These numbers back up those plans fully, as well as point the way to solid long-term growth. Buy Cineplex Galaxy Income Fund on dips to my target of USD20.

CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF) saw an 8.9 percent shortfall in revenue, which it only partly offset with an 8.4 percent cut in operating expenses. The result was a 10.1 percent drop in cash flow and an equal drop in distributable cash flow. The good news is even at that level, the payout ratio came in at just 93.2 percent for the quarter and 93.4 percent for the year.

Canadian operations benefitted from the rollout of Radiology Information services at 12 sites, as well as a revenue increase under the Ontario Ministry of Health funding agreement. US operations, meanwhile, improved margins though revenue remained challenged by weak conditions.

The company still plans to convert to a corporation, reducing dividends to a monthly rate of 6.29 cents Canadian starting in January. These numbers strongly support the new rate. A return to growth, however, is going to improvement in the US. The good news is sequential results show rising margins and stabilized sales south of the border, a good sign we’ve seen the worst for these operations if not for year-over-year comparisons. It’s also a good indication that management’s aggressive moves earlier this year to turn things around are paying off. That’s a good sign for CML’s future. CML Healthcare Income Fund is still a buy up to my target of USD12.

IBI Income Fund (TSX: IBG-U, OTC: IBIBF) results continued to improve in the third quarter, as the company continued to add public sector business and absorb recent acquisitions.

Revenue surged 10 percent sequentially from second-quarter levels and is up 12.6 percent from fourth quarter 2009. Cash flow, meanwhile, is up 12.9 percent sequentially and 31 percent from the fourth quarter. Cash flow margins rose for the third consecutive quarter to 14.8 percent of revenue, from their fourth quarter 2009 nadir of 12.7 percent. Distributable cash is up 66.7 percent from fourth-quarter levels.

Public sector work again accounted for more than two-thirds of total revenue, with the company adding business in the UK, Australia, South Africa and the Persian Gulf with its acquisition of Nightingale Architects in the second quarter. The improved margins are particularly encouraging, demonstrating the company’s growing ability to take the best business around the world even in a suboptimal economic environment. The company is currently on the hunt for acquisitions in Canada, China and India.

IBI has now set its post-corporate conversion policy. The new dividend will be paid monthly at an annual rate of CAD1.10 per unit, a 31 percent reduction from the current rate and in line with the corporation’s expected tax rate. That reflects a continued aggressive dividend payout policy, which management is likely to increase as business grows, and equates to a 7.1 percent yield based on IBI’s current share price.

The reduction is pretty much in line with my expectations and what management had been saying, though I had hoped for a bit higher given the company’s large volume of business outside Canada. In any case, IBI remains a solid company and a strong bet for annual total returns of 10 to 15 percent for years to come. My buy target for IBI Income Fund remains USD15.

Innergex Renewable Energy (TSX: INE, OTC: INGXF) posted a 66.4 percent jump in third-quarter cash flow, fueled by a 59.5 percent jump in megawatt hours (MWh) of electricity produced. That was largely the result of the merger of the Innergex Power Income Fund with its parent earlier this year, which created a high-yielding, fast-growing bet on renewable energy.

The issue of new shares to complete the merger offset those results. But the payout ratio based on adjusted cash flows from operating activities still came in at just 63 percent. The company also obtained an investment grade BBB- rating from S&P and a BBB rating from Dominion Bond Rating Service. It also reported solid progress with several major construction projects, including road construction for two major hydro facilities. These projects will power Innergex’s business growth going forward.

The company has 17 operating facilities with a net capacity interest of 326 MW but also 203 MW in seven projects under development/construction for which output has already been contracted to buyers. And it has another 2,000 MW in opportunities it continues to move forward.

As for existing projects, these ran at 97 percent for hydro during the quarter and 10 percent for wind, or about 99 percent of long-term averages despite erratic water flows in much of Canada. Those rates actually improved in the month of October, auguring better fourth quarter results. All in all, there were no real surprises and the company continued to execute its low risk growth model. Innergex Renewable Energy remains a solid buy up to my target of USD10.

Northern Property REIT (TSX: NPR-U, OTC: NPRUF) turned in another solid third quarter, with distributable income per unit rising 8.9 percent on a 9.1 jump in revenue. The payout ratio was again very low at 63.1 percent, supporting the 3.4 percent dividend boost effective in September.

Management reported that overall vacancy levels have now returned to pre-recession levels, as “robust” conditions in the Far North, Newfoundland and northern British Columbia offset continuing weakness in Alberta, though that province too saw improvement. Same-door growth–which excludes the impact of acquisitions and divestitures–ticked up 3.6 percent.

Real estate investment trusts are generally exempt from 2011 trust taxation rules. Northern’s investment in its ExecuSuite properties, however, has forced it to make some restructuring moves in advance of Jan. 1. The company will hold a special meeting on Nov. 25 to ask unitholders to approve the creation of a new taxable corporation, NorSerCo, which will hold all of Northern’s assets that don’t qualify for the REIT exemption, mainly ExecuSuite properties. Northern will retain ownership but will get its cash indirectly through NorSerCo.

The only change for unitholders is the REIT units will become NPR/NorSerCo staple shares, combining a portion of debt with equity into a single security. Cash distributions will remain the same, and the move is not a taxable event. In fact, there’s potential upside for US investors regarding taxation. The debt interest portion of the dividend will no longer be withheld the 15 percent, either inside or outside IRA accounts, while the equity portion should escape withholding inside IRAs like other corporations. Northern Property REIT is a buy up to USD26.

Aggressive Holdings

Ag Growth International (TSX: AFN, OTC: AGGZF) turned in expectations-beating third-quarter results and simultaneously announced an 18 percent increase in its dividend to an annual rate of CAD2.40 per share. Sales surged 21.7 percent and cash flow rose 11.7 percent over year-earlier levels. That pushed up earnings per share to CAD1.25, a 6.8 percent boost over what was a very strong third quarter 2009. That covers the new dividend rate by better than a 2-to-1 margin.

Demand for commercial grain handling equipment was robust in the US, with sales in US dollars rising 20 percent. That offset weakness in the Canadian harvest due to adverse weather. The company has made several investments in product and process capacity that should start to lift earnings again in 2011, including expansion outside of North America, particularly in Eastern Europe.

Strong earnings news and dividend growth pushed Ag Growth to a new all-time high this week, and it currently trades well above my target of USD40. That higher valuation hasn’t been lost on the Bay Street analysts who follow it, and we saw several downgrades this week. The upshot: I’m keeping my target where it is on Ag Growth International for now. Hold if you’ve got it. Otherwise, let’s be patient a little while longer.

Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF) has reconfirmed its plan to remain a trust or specified investment flow-through (SIFT) in 2011 rather than convert to a corporation. That’s partly because of the expense of conversion and partly because management believes “it will not be subject to any SIFT tax.” That’s a positive shift from previous estimates of a tax rate of “less than 10 percent.”

Despite the outage at the Beaumont, Texas, plant cash flow from operating activities again covered the distribution, enabling the company to avoid dipping into cash reserves. Higher demand for sulphuric acid, Chemtrade’s most important product by volume, was a major plus.

The most positive development in recent weeks is the completion of repairs to the Beaumont plant and the restart of the facility. Management estimates the shut-in of the plant depressed distributable cash flow by CAD5 million, or CAD0.16 per unit. About half of that should be added back to the bottom line in the fourth quarter, in addition to proceeds from business interruption insurance. So will cash flow from selling the output of the Vale smelter, which has been running at normal rates since mid-August.

Facilities that process volatile chemicals are always at risk to outages. The good news is Chemtrade has once again weathered a rough patch in its business thanks to a very conservative financial strategy. Net debt remains a very low 0.8 times annualized cash flow, with no significant maturities until August 2011. The stock has hit a new post-2008 crash high and is somewhat above my previous buy target. I don’t look for dividend growth in the near future. But in view of these results, I’m raising my buy target for Chemtrade Logistics Income Fund to USD13.

Consumers’ Waterheater Income Fund (TSX: CWI-U, OTC: CSUWF) has shot up considerably in the two days since I added it to the Portfolio’s Aggressive Holdings. But the company’s robust third-quarter numbers demonstrate it’s a solid buy all the way up to my target of USD6.50.

Cash flow rose 38 percent, as waterheater rental attrition rates dropped 25 percent from last year. Distributable cash flow rose 23.9 percent, and the payout ratio fell to just 57.7 percent for the quarter. The results were due in large part to successful customer retention programs combined with cost controls and higher rents.

Encouragingly, sub-metering revenue stabilized after several down quarters, with revenue rising 13 percent and even profit ticking up slightly, even as the company benefitted from recent cost-cutting measures. Sub-metering results should improve markedly in future quarters, thanks to the Enbridge acquisition and the new operating rules set by the province of Ontario. (See November’s High Yield of the Month.)

Stronger performance at the waterheater rental operation combined with expected growth of sub-metering operations promise solid cash flow growth going forward and comfortable dividend coverage after Consumers’ converts to a corporation Jan. 1. At that time it will change its name to EnerCare Inc in a tax-neutral transaction, on a one-share-for-one-unit basis. The new company will absorb an estimated CAD6 million to CAD8.5 million in taxes, which it expects to be able to absorb easily while maintaining its current distribution rate.

The upshot: These results are still more evidence Consumers’ has put its troubles of recent years well behind it. Buy Consumers’ Waterheater Income Fund up to USD6.50, where the stock still yields about 10 percent.

Enerplus Resources Fund (TSX: ERF-U, NYSE: ERF) posted production and cash flow in line with management guidance, even as it continued to add light oil and shale gas assets at a torrid pace.

Total oil and gas output averaged 82,869 barrels of oil equivalent per day (boe/d), as the company spent CAD128 million on new development during the quarter. The payout ratio for the first nine months of the year was 52 percent of distributable cash flow, or 108 percent for dividends plus capital spending. The three-month payout ratio was 47 percent, or 110 percent including cash spent on development. Debt-to-annualized cash flow remained among the lowest in the industry at 0.9. Operating costs were basically flat with year-earlier tallies. Realized selling prices were USD3.67 per thousand cubic foot for natural gas (57 percent of overall output) and USD66.97 per barrel for oil.

Looking ahead, management expects Enerplus’ overall output to be roughly flat in the fourth quarter with third quarter levels, after taking into account the sale of several “non-core” properties to finance growth in the Bakken (light oil) and Marcellus (shale gas). The company is still on track with its plans to convert to a corporation Jan. 1, pending a Dec. 9 vote by unitholders.

As stated previously, the monthly dividend rate of CAD0.18 will remain the same after conversion, and the company does not expect to incur cash taxes for the next three to five years. That leaves substantial cash reserves to continue what management has called its “transitioning of the asset base,” even if natural gas prices remain depressed. The company now has 210,000 net acres of undeveloped land in North Dakota and southern Saskatchewan that’s tapped into the Bakken light oil play. It also has 70,000 net acres of “concentrated land” and 130,000 acres of non-operated land in the Marcellus shale of West Virginia and Maryland. Those are some of the largest positions of any company and could wind up making Enerplus a takeover target as well.

In the meantime, even flat energy prices should produce total returns of at least 10 to 15 percent a year, with a return to the 50s a high probability on a natural gas recovery. Enerplus Resource Fund units are a buy anytime they trade under USD28 for those who don’t already own them.

Provident Energy Trust (TSX: PVE-U, NYSE: PVX) generated relatively flat third-quarter margins, largely due to a softening in natural gas liquids (NGL) markets that depressed both volumes and prices. Encouragingly, year-to-date margin is still a solid 5 percent above 2009 levels, as the company focuses operations and cuts costs.

Adjusted cash flow–which excludes restructuring costs and the buyout of financial derivatives–rose 107 percent from year-earlier levels. The year-to-date payout ratio based on distributable cash flow came in at 110 percent, roughly equal to the 109 percent ratio for the third quarter alone. The company was also successful refinancing debt coming due next year yielding 6.5 percent with new notes paying out just 5.75 percent and coming due in 2017.

As previously announced, Provident will cut its monthly payout from the current rate of CAD0.06 to 4.5 cents, starting with the January payment. That will cover the anticipated impact of corporate taxes and help continue to fund asset growth.

Capital expenditures were 23 percent higher in the quarter versus year-earlier levels, and management expects more spending on growth in 2011, including upgrades to a storage facility in Ontario. The company is also looking at partnering on several prospective projects in the Marcellus Shale in the US as well as Alberta.

My expectation is the company’s NGL infrastructure business will continue to grow going forward. The new dividend rate represents a yield of around 7 percent based on Provident’s current unit price. That should add up to annual returns of 10 to 15 percent even under conservative assumptions. And as one of the largest NGL franchises in North America, Provident Energy Trust is a potential takeover target as well. My buy target remains USD8.