There are barely three weeks to go before the books close on the first quarter of 2011. So it’s fair to ask just what good are the remaining fourth-quarter and full-year 2010 numbers left to be reported and whether it’s worth following up on them.

Like every other analyst and investor, if I had my druthers I’d like to see every company I track post earnings within a month of a quarter’s close. Unfortunately, given today’s regulatory burdens North American companies simply can’t turn things around that fast, particularly for year-end statements. And that goes double if companies are small to mid-sized–usually the most attractive stocks out there–and therefore can’t afford a legion of lawyers and accountants to rush things along.

As every first-year financial statement analysis class teaches you, earnings statements and balance sheets are basically snapshots in time of a company’s health. The actual inflows and outflows of a business literally create a different snapshot before the first page of those statements is printed. And if those pages aren’t distributed until two months or more after the data is collected, the law of diminishing returns has definitely kicked in.

Analyzing reports at this stage, however, is useful for a couple of reasons. First, it’s the only information to assess whether or not the guidance management dished out last year held any water. This, more than anything else, is critical to whether dividends can be sustained and increased into the future.

As I wrote in the September 2010 CE Feature Article–as well as several times since then–my expectation is dividend growth is reviving in Canada and will accelerate in 2011. So far we’ve seen that on a limited basis, notably March High Yield of the Month picks Keyera Corp (TSX: KEY, OTC: KEYUF) and Acadian Timber Corp (TSX: ADN, OTC: ACAZF), which boosted payouts 6.7 and 312.4 percent, respectively, last month. Earlier this month Bird Construction (TSX: BDT, OTC: BIRDF), highlighted below, lifted its payout by 10 percent.

These increases have been made possible by a combination of improved business conditions, solid performance of the underlying companies and restored management confidence that it can pay higher dividends and higher taxes in 2011 and beyond. All three are necessary for a company to boost dividends this year, or any future year. Fourth-quarter and full-year 2010 numbers provide valuable clues as to whether company performance and management confidence are really on track, mainly because they tell us whether or not prior guidance is still on track.

Fourth-quarter and full-year 2010 reports are also key information because of the guidance management provides for 2011, including information on how the companies are performing in the first quarter and what they intend to spend on new capital projects that are essential for cash flow and dividend growth.

More than anything else, it’s probably this upcoming preview of first-quarter reporting season that’s influencing share prices. For some companies, the news has excited investors and pushed stocks higher after announcement and conference calls. For others, the effect has been just the opposite. In fact, where combined with poorly placed stop-losses, it’s triggered fairly steep declines for certain stocks, though these have mostly been reversed in subsequent days.

As I wrote in the earnings analysis in the March Portfolio Update and the Feb. 23 Flash Alert, we’re not really interested in whether or not a company beat Bay Street guidance in the fourth quarter. In fact, this far out from Dec. 31 it’s pretty much irrelevant to anyone interested in these stocks for dividends.

What we want to know is if first-quarter progress is still in line with what management has been guiding too. That’s what they’ll base their dividends and growth plans on in 2011. If they’re on, dividend growth is possible. If they’re not, dividends may well be at risk.

Prior to the batch of results highlighted below, one Canadian Edge company had reported results that put me a little on edge: CML Healthcare Inc (TSX: CLC, OTC: CMHIF). I cut the stock to a “hold” in the wake of the report, which raised some real questions about just how long we’ll have to wait until the slumping US business recovers.

The good news is the shares have since stabilized, and no Bay Street analysts have downgraded the stock to a “sell.” The bad news is worse US results–while not threatening the dividend this year–will make it hard for the company to grow in a way that management clearly wants to. The stock currently yields a bit over 7 percent, which is probably about right given the reduced outlook for growth.

Accordingly, I’m keeping CML Healthcare Inc a hold for now, with a decision on keeping it dependent on whether first quarter results stabilize or show more deterioration when they’re announced on or about May 5.

Ironically, the stock to generate most angst among readers continues to be Yellow Media Inc (TSX: YLO, OTC: YLWPF). The company’s fourth-quarter and full year 2010 earnings released about a month ago didn’t surprise any Bay Street analysts, none of whom changed their ratings on the stock. Nor did any insiders give up positions. Even the number of short positions appears to have dropped sharply, though it reached nearly 40 percent of available float at one time. The 12 percent-plus drop in the stock over the past month, however, has unnerved many who fear that where there’s smoke there’s fire–and that the company’s ability to generate consistent profits in fact is going up in smoke.

As I wrote in the March Portfolio Update and the Feb. 23 Flash Alert, there’s really nothing to indicate that in the numbers released last month. The company appears to be building its Internet advertising business roughly as fast as it’s losing its print yellow pages directory business–demonstrated by steady revenue growth. Web-based revenue is now 29 percent of the business, besting a target management set three years ago of 20 percent. And the company is still building that rapidly, with management expecting a return to “organic” revenue growth (excluding acquisitions) next year.

Whether it succeeds in hitting that target is really the million dollar question, i.e. whether or not Yellow generates the hefty potential returns we’ve alluded to in Canadian Edge’s recent sales promotions for new readers. If they are successful, the stock is certainly headed back to double-digits, in addition to paying a yield well in double-digits.

If they aren’t, there’s a lot of downside protection here with Yellow priced at 52 percent of book value and a 12.5 percent yield covered by cash earnings by a roughly 1.45-to-1 margin. Still, no one should own Yellow Media who isn’t patient (we’ve certainly had to be so far), willing to bet against a strongly negative investor consensus and prepared for the risk of failure.

For those that are and don’t already own the stock, Yellow Media Inc is still a buy up to USD8. Those who don’t fit that description should look at the myriad other recommendations in Canadian Edge, including the companies whose earnings I highlight below. Look for another Flash Alert on the remaining companies to report in a couple of weeks, with a full wrap up of all How They Rate companies in the April issue of CE.

Bird Construction Inc (TSX: BDT, OTC: BIRDF) is boosting its distribution again, this time to a quarterly rate of 49.5 cents per share from the prior CAD0.45. The new rate coincides with a scheduled 3-to-1 stock split, which is slated to take place on April 22 for shareholders of record on Apr. 14. There will be no withholding tax or any other tax due on the split, which will reduce shareholders’ cost basis by two-thirds.

Separately, Bird announced a 10.3 percent increase in fourth-quarter 2010 revenue, as public sector business remained strong and private sector operations began to revive, particularly in the energy patch. Backlog was boosted to CAD1.23 billion, another good sign for 2011. Continuing the trend of the past couple quarters, net income per unit was lower, reflecting lower margins on new business due to a competitive bidding environment and the slow pace of recovery for the large, lucrative deals that are Bird’s specialty.

The payout ratio, however, was still low at 71.4 percent in the quarter. And in any case, the market largely expected this news, demonstrated by the stock’s generally strong performance and upgrade from one of the major Bay Street houses. That’s a steep contrast to Bird’s steep though very short-lived slide in the wake of announcing mildly disappointing third-quarter earnings, which I’ve cited several times as an example of why no one should use stop/losses for these stocks.

Bird Construction is again well above my buy target. But those who don’t own it should keep an eye out for any dip to USD36 or lower as an opportunity to get in. That equates to a price of USD12 post the April stock split.

Colabor Group (TSX: GCL, OTC: COLFF) posted a 0.9 percent lift in comparable fourth-quarter 2010 sales on a 4.03 percent cash flow margin. Actual sales were lower by 4.9 percent, related to the major supply contract lost in February 2010. That event will no longer affect comparables going forward.

More important, however, management’s strategic moves over the past year are now making up the loss, particularly the acquisition of RTD Distributions Ltd in September. Net earnings also showed a decline, mostly due to the conversion of debentures to common stock. This will reduce interest costs going forward.

Most important, management reported several encouraging trends, including improved conditions in the Ontario foodservice market. Fourth-quarter margins were notably ahead of the full-year 2010 average. Debt-to-cash flow is just 0.86-to-1, despite the use of a credit line to buy RTD. Interest coverage, meanwhile, is nearly 6-to-1. Finally, the all-important annual payout ratio was just 77 percent of cash flow, down from 82 percent the year before. All that puts the company in prime shape to snap up more accretive acquisitions, such as the purchase of the leading importer and distributor of fresh fish and seafood products in Quebec (CAD113 million) announced late last month.

Management still has a very conservative outlook for 2011, including a “slow” recovery of markets and “lively” competition. As a result, it’s looking to efficiencies–particularly expansion into businesses it knows in a wider geography–to provide growth. That’s a strategy that should continue to support Colabor’s lofty dividend. Moreover, the company has proven its resilience in the face of what have been very difficult market conditions. Fuel costs are a long-term concern for any company involved in product distribution. Colabor, however, continues to do a good job of structuring contracts to avoid the risk, with 40 percent of contracts containing automatic “surcharges” that pass along costs, including the areas where gas prices are the most concerning. Such cost pass-throughs are also a part of food service contracts, which factor out commodity price inflation further. The company is also developing “private label” business (now 9 percent of sales), which will further insulate it from costs.

The stock slid about 50 cents per share (roughly 4 percent) the day of the announcement and has since stabilized, following an upgrade to buy from one of the major Bay Street houses. My view is this is still the picture of a healthy company capable of paying us a hefty dividend as it adds business and as conditions in its sector improve. Colabor Group is a buy up to USD13 for those who don’t yet own it.

Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF), as pointed out in Dividend Watch List in both the February and the March editions of CE, has yet to declare its first regular dividend as a corporation. As a result, its posted yield is still reflecting the higher rate it paid as an income trust, rather than what it actually does now. The situation is likely to be further confused with the CAD0.15 per share “special cash dividend” declared to shareholders of record at close of business Mar. 18, with a payment date of Mar. 31.

This is exactly what management said it would do. But the new quarterly rate of CAD0.30 per share won’t be reflected in quoted yields until it’s first declared, which is expected to happen May 18. Until then, shareholders will simply have to make a mental note that the actual yield is 5.3 percent, not the 8.2 percent quote services (including the CE How They Rate table) are showing.

That being said, Davis + Henderson’s fourth-quarter and full-year 2010 results–announced March 9–are quite encouraging for future returns, including potential dividend growth. The successful acquisition of Resolve and generally solid operations elsewhere pushed up fourth-quarter revenue 5.9 percent from year-earlier levels. Excluding a restructuring charge of CAD6.2 million, cash flow was 3.8 percent lower, as higher expenses generally offset the impact of improved volumes. By and large, however, the fourth quarter marked a consolidation of growth earlier in the year, as full-year cash flow rose 10.2 percent on a 35.1 percent jump in revenue. Adjusted income was off 5.3 percent due to the issuance of 9.3 million more units to finance the Resolve deal. But the dilution will be reversed this year as that unit starts adding to growth. The full-year payout ratio was 85 percent, based on Davis’ dividend rate as an income trust.

Looking behind the big numbers, the company continues to move with the changing needs of its primary customers, Canada’s still quite healthy banking system. Loan registration technology services, for example, saw a fourth-quarter revenue boost of 10.1 percent, supporting the country’s rise in commercial and personal lending activity. Mortgage services revenue surged 13.8 percent, riding the 7 percent boost in Canada’s mortgage origination in the fourth quarter. Overall consolidated expenses were up 9 percent, in large part due to what should be temporary costs of integrating business lines including the use of contractors. Restructuring charges relate to the shedding of “non-strategic” business lines and greater focus on others, which is likely to be more of recurring cost in my view given the often rapid pace of change in the financial services industry.

But in any case, cash flow will continue to support the new dividend rate with room to spare, allowing management to continue making accretive acquisitions and meeting its modest goal of 3 to 5 percent cash flow growth. Management doesn’t expect Davis + Henderson to pay cash taxes until 2013 and will use a new metric, “adjusted net income,” from which to calibrate future dividend increases. CEO Robert Cronin didn’t respond directly to an analyst’s question about such future boosts but strongly hinted results were coming in better than expected.

Given management’s conservative approach with the initial post-conversion dividend, I don’t expect a dividend increase this year. But with the business healthy, growing and increasingly flexible, there’s certainly plenty of room for upside, both in share price and dividend. My buy target for Davis + Henderson Income Corp is up to USD20 if you haven’t yet.

Northern Property REIT’s (TSX: NPR-U, OTC: NPRUF) high-quality portfolio and geographic diversity insulated its results from the North American recession. Now the real estate investment trust is again growing gangbusters.

Net operating income (NOI) in the fourth quarter surged 7.5 percent, while same-door NOI growth, which excludes acquisitions, rose 5.7 percent. Fourth-quarter revenue growth accelerated to 10.7 percent. The payout ratio dropped to 74.5 percent of distributable income, which in turn rose 10.1 percent. That was despite a 3.5 percent increase in distributions per share. The funds from operations payout ratio was 73.7 percent for the quarter and 67.6 percent for the year.

Remarkably, these results were achieved despite the cost of restructuring to meet the Tax Fairness Act’s tighter restrictions on REITs. At the core of Northern Property’s results was much lower vacancy loss of just 4.5 percent versus 8.7 percent a year ago. Vacancy loss has dropped sharply since peaking at roughly 10 percent in the third quarter of 2009. Vacancy loss was particularly low in the more far-flung parts of the REIT’s empire, particularly Nunavut (0.6 percent), Newfoundland (1.1 percent) and North West Territories (2.6 percent in Yellowknife and 4.2 percent in Inuvik). Alberta remained a trouble spot, with Fort McMurray at 9.3 percent, but also showed signs of improvement as oil patch activity kicked up.

The company made relatively few acquisitions in 2010 and actually expects lower capital expenditures for the year ahead, demonstrating once again management’s conservative approach and focus instead on running its existing properties as efficiently and profitably as possible. That should keep cash flow and distributions rising this year, with an increase likely to be announced in August as it was last year. The units have been hot over the past year, though they’ve cooled off the past couple days. My advice remains to stick to my buy target and not pay more than USD28 for Northern Property REIT.

Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF) was organized as a corporation for the entire fourth quarter, absorbing taxes while maintaining the dividend it paid as an income trust and pursuing its growth plans.

The company grew revenue and cash flow from operating activities (up 13.6 percent), thanks to successfully bringing new cash-generating assets into its earning base, by both acquisitions and construction projects. And with CAD200 million-plus in new growth capital invested, there’s more in store for 2011, with the Mitsue and Nipisi pipelines on track for mid-2011 startup. These pipelines alone are projected to generate an additional CAD45 million in operating income per year.

Management plans to maintain the current level of dividend through 2013, with future growth dependent on how effective it is bringing on new assets. Pembina has traditionally run three business lines: conventional pipelines, oil sands pipelines and a midstream and marketing business that attempts to maximize profit from the rest of the company’s assets. The first two divisions reported higher revenue and solid operating income, while the marketing business had lower.

Happily, the slack was picked up by a fourth business line, Gas Services, which enjoyed a near doubling of revenue and net operating income thanks largely to asset additions. The result of this new business is that the company is more reliant on fee-generating assets and less so on more volatile revenue streams. That will be key as management spends a record CAD470 million on growth capital projects in 2011. As always, the company will finance both capital spending and dividends primarily with internally generated cash flows, a strategy that will maximize financial strength and dividend safety.

The likelihood that dividends won’t increase anytime soon means new investors shouldn’t pay more than USD22 for Pembina Pipeline Corp. But the stock remains a core Conservative Holding and the least-risky way to play the growth in the Canadian oil sands.

Perpetual Energy (TSX: PMT, OTC: PMGYF) turned in solid fourth-quarter and full-year 2010 cash flows. The payout ratio dipped to just 23.1 percent, largely thanks to successful hedging which continues to lock in higher selling prices than the natural gas market in North America is currently supporting. Management, however, noted new threats to future cash flows, including “high gas storage levels and concerns about new supply.” As a result, the CAD0.03 monthly dividend should still be considered at some risk.

The company also announced an additional CAD42 million in capital expenditures for second, third and fourth quarters of 2011, with efforts focused on “oil and liquids-rich projects” at newly developing properties in eastern Alberta. The move to liquids is something of a departure for Perpetual, which to date has focused almost entirely on production and sale of dry gas. So is the investment in gas storage, which could prove critical if the company is to maintain gas production at stable levels as it did in 2010. The reason is the economic reality of weak natural gas prices that now appear set to endure in North America at least for the rest of 2011. And the company’s success in its switch is likely to be critical to its ability to pay dividends going forward.

On the plus side, bank debt has been cut 20 percent over the past year, 10 percent including convertible debentures that are now 47 percent of total obligations. Operating costs were cut 13 percent per thousand cubic feet of gas produced to what management called a “sustainable” CAD1.64, or roughly CAD9.84 on a barrel of oil equivalent basis. It also continues to be supported by proceeds from shut-ins of capacity on top of bitumen reserves. Oil and natural gas liquids production increased 73 percent in 2010 to 4 percent of total output, and looks set for further gains.

And Perpetual replaced 129 percent of 2010 output with new proved plus probable reserves. That was a 3 percent boost in proved plus probable reserves after asset sales, and 2 percent in proven reserves. Finding, development and acquisition costs (FDA) were competitive at CAD12.96 per barrel of oil equivalent, as the company more than doubled capital spending from 2009 levels.

Extraordinary times call for extraordinary measures, and Perpetual seems to be responding, executing on plans management has made in recent years to survive a tough price environment. No one, however, should assume the company is out of the woods, and much will depend on what happens to gas markets long term. That’s why Bay Street is firmly bearish on the stock, with one “buy,” five “holds” and four “sells.” Interestingly, the bearish consensus has been at odds with insiders, who have bought consistently over the past year.

But so far, it’s been the outsiders who’ve been right on the stock. Hold Perpetual Energy, but only if you’re very patient and ready to handle the risk of a deeply contrarian bet on gas.

Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF) followed up last month’s release of robust reserves growth with a solid fourth-quarter financial performance.

Despite a 20 percent drop in natural gas prices from last year, the company rode 28 percent growth in production per share to a 73 percent operating margin, 23 percent revenue growth and 15 percent growth in funds from operations per share, the account from which dividends are paid. That pushed the payout ratio down to 70 percent for the quarter, or 35 percent at the post-corporate conversion dividend rate. Capital expenditures were lifted 320 percent at the same time on a 9 percent increase in outstanding equity, even as the company slashed interest expense per thousand cubic foot of production by 18 percent and cut net debt by 8 percent.

That’s an extraordinary achievement for the company and it should continue into 2011, when Peyto plans to spend an even larger sum of CAD300 million to CAD325 million developing new production and reserves. Things would be even better for Peyto if natural gas prices stage some kind of rebound, even a short-lived one that would enable more effective hedging. But even if gas keeps slumping, this company has proven its ability to thrive by boosting scale and controlling costs.

As of this writing, the company trades with a market value of just 58 cents per dollar of proven plus probable reserves in the ground, even at an exceptionally conservative discount rate. That’s why I’m comfortable recommending it as a low-risk play on natural gas despite a yield of less than 4 percent and a 64 percent total return over the past 12 months. Peyto Exploration & Development Corp is a buy up to USD20 for those who don’t already own it.

PHX Energy Services Corp (TSX: PHX, OTC: PHXHF) has dropped more than CAD2 a share since announcing fourth-quarter and full-year 2010 results. That’s to be expected with five major Bay Street houses cutting their ratings from “buy” to “hold” in the wake of the numbers, bringing the total to three “buy” and nine “holds.” The stock now trades between 10 and 20 percent below the target prices set by the downgraders.

My view for some time has been that PHX was too pricey to merit a “buy” rating, despite being a very solid and growing company. Now that the stock is back under my buy target of USD14, the key question is whether or not something really has changed to indicate a weakening business, or the investment houses are simply responding to missed expectations–in which case these share price moves are ephemeral.

Management reported a “record level of activity in Canada, the US and internationally,” crediting greater demand for services driven by high oil prices and its capacity expansion. It reported expansion of operations in Albania, Columbia and Russia, rising use of its signature horizontal and directional drilling services globally. And it continued to expand rapidly in the US Bakken Shale region.

Full-year revenue rose 72 percent and funds from operations–the account from which dividends are paid–were up 35 percent. Gross profit as a percentage of revenue was flat at 26 percent from fourth quarter 2009 levels. Job capacity was increased 33 percent as the company added equipment for rent and deployed them. It also reported ordering 27 “positive pulse measurement while drilling (MWD) systems,” bringing its fleet to 170 such systems by the end of 2011. As for fourth-quarter numbers, revenue rose 65 percent, spurring a 42 percent jump in cash flow. Funds from operations slipped 16 percent but still covered the dividend by better than 2-to-1 (payout ratio 49 percent).

Looking ahead, management expects strong demand to continue fueling revenue, with the favorable impact tempered by rising costs from third party rentals. These will continue to cost the company until the new capacity comes on stream. Depending on how high those costs are, earnings will be crimped. Was that the real reason for the massive opinion shift on Bay Street? Possibly, but in any case the results reveal no immediate threat to PHX’ financial strength or dividends. That would seem to suggest today’s selling wave will soon crash over. Hold PHX Energy Services Corp if you own it.

Provident Energy Ltd (TSX: PVE-U, NYSE: PVX) announced a major project with Conservative Portfolio Holding AltaGas Ltd (TSX: ALA, OTC: ATGFF) that promises to ramp up its fee-generating revenues in the fast-growing natural gas liquids business. Provident and AltaGas will each have a 30 percent share in the project, which is expected to be operational in the fourth quarter of 2011. The remaining 40 percent is owned by an unnamed “major producer.”

Provident’s fee-based businesses are critical to leavening out its remaining commodity price exposure, which while lessened after recent asset sales is still considerable. The good news is that worked largely to the company’s favor in the fourth quarter and full-year 2010. Full-year gross operating margin–a key measure of profitability–rose 9 percent, largely on a strong natural gas liquids margins. Adjusted funds from operations, the account from which dividends are paid, surged 30 percent to CAD0.77 per share. That pushed the payout ratio back under 100 percent for the full year to 93.5 percent of funds from operations. The ratio based on a slightly different measure of distributable cash flow posted by management came in at 96 percent, far below the 120 percent posted in the third quarter of 2010.

Total debt was chopped by 6 percent, another key management objective, with debt-to-cash flow coming down to 2.1-to-1. That was despite a 30 percent boost in capital spending to CAD48 million, CAD42 million of which went to finance “growth” ventures to add to future cash flows. The fourth quarter payout ratio based on distributable cash flow came in at just 65 percent.

All in all, these are very encouraging results for dividend investors. I’m not yet ready to move Provident to my Conservative Holdings from the Aggressive Holdings–that will only happen if fee-based revenue grows considerably more. But Provident Energy Ltd is a buy for those who can take on a bit of risk up to USD9.

Here are earnings announcement dates for Portfolio Holdings still to reveal numbers:

Conservative Holdings

• Atlantic Power Corp (TSX: ATP, NYSE: AT)–Mar. 21
• IBI Group Inc (TSX: IBG, OTC: IBIBF)–Mar. 21
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–Mar. 23
• Macquarie Power & Infrastructure Corp (TSX: MPT, OTC: MCQPF)–Mar. 10

Aggressive Holdings

• Ag Growth International (TSX: AFN, OTC: AGGZF)–Mar. 14
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–Mar. 14