Sustainability is the hallmark of Canadian Edge recommendations. The current lineup of the Conservative Portfolio represents businesses that are strong and growing. And they’re in good shape to pay big dividends long after 2011, no matter what comes down the pike.

Our Aggressive Portfolio recommendations—all of which are involved with production of energy—are also chosen with sustainability in mind. All are well managed and boast solid asset portfolios, and they’re strong enough to weather most environments for energy prices.

Being taxed as corporations in 2011 will bring adjustments. But these trusts also have some weapons at their disposal to bring their effective tax rates closer to the 6.7 percent the typical Canadian corporation pays, rather than the scary official rate of 31.5 percent.

Just as important, management recognizes its place in the investment universe as high dividend payers, whether they’re organized as trusts, corporations or limited partnerships after 2011. And where there’s a will, there will be a way to pay big dividends, at least as long as they remain independent.

What the Aggressive Portfolio picks aren’t insured against, however, are dramatic drops in energy prices. Most are somewhat protected by hedging (locking in prices for future output), low cost structures, long-lived reserves, low debt, low payout ratios and balanced production between oil and gas. But when oil and gas prices dip, cash flows eventually follow. And if the damage is too severe, management will have no choice but to reduce distributions as well.

ARC Energy (AET.UN, AETUF), Enerplus Resources (ERF.UN, NYSE: ERF), Penn West Energy Trust (PWT.UN, NYSE: PWE), Peyto Energy Trust (PEY.UN, PEYUF), Provident Energy Trust (PVE.UN, NYSE: PVX) and Vermilion Energy Trust (VET.UN, VETMF) all managed to hold their distributions over the past year, despite a more than halving of natural gas prices from late-2005 levels. Their share prices were buffeted around, particularly after the Halloween taxation announcement. But all managed to keep paying out the cash to investors and maintain their business plans.

Of our service companies, Trinidad Energy Services Income Trust (TDG.UN, TDGNF) and Newalta Income Fund (NAL.UN, NALUF) have seen their businesses slowdown some in recent months, not surprising as Canadian natural gas patch activity has been cut in half from year-earlier levels. But they, too, are protected by conservative finances and diversified business profiles.

Trinidad, for example, derives a growing chunk of its activity from the US market, where activity remains robust. And its focus on deep drilling and long-term contracts also stabilizes cash flows. Newalta’s environmental cleanup business, meanwhile, is well diversified outside the energy patch as well as western Canada.

Three of the Aggressive Portfolio recommendations, however, are considerably more leveraged to energy prices: Advantage Energy Income Fund (AVN.UN, NYSE: AAV), Paramount Energy Trust (PMT.UN, PMGYF) and Precision Drilling (PD.UN, NYSE: PDS). Unlike the other Aggressive Portfolio picks, all three have had to trim distributions at least once in the past year.

We own them for one reason: They’re well-managed companies that are in prime positive to benefit from a rebound in natural gas prices. That appeared to be happening earlier this summer, and all three trusts responded with solid share price gains.

The recent drop in natural gas prices has been greatly overshadowed by the surge in oil prices. But it’s almost certainly had a very real impact on these trusts’ cash flows.

Yesterday, I was able to speak with executives at Paramount Energy. In my opinion, the trust’s business plan has been greatly advanced by its acquisition of gas-producing properties from Dominion Resources.

And the trust has proven its ability to maintain solid production over the years, with a relatively low decline rate of about 18 percent. The new properties provide a range of new places to continue development, including some nonconventional sources.

What management can’t do is fully ensure the trust against further weakness in natural gas prices. And if gas prices remain at their current levels, the policy of hedging roughly 50 percent or so of output won’t be enough to prevent a dip in cash flow in the coming months.

Paramount management’s primary goal is long-term sustainability. That means first and foremost doing what it takes to maintain and expand its drilling program.

The second priority is not over-leveraging the trust. Management is comfortable with debt at about 1.5 times annual cash flow, given low gas prices. But it looks to bring that down over time.

That makes maintaining the current level of distributions the third priority. And with gas prices dipping yet again, Paramount is trimming its distribution yet again to around 10 cents Canadian a share.

That’s a level management is comfortable with at the moment. But investors can bet that, if push comes to shove, it will be slashed again.

The flipside is that if natural gas prices rise, investors can expect distribution increases. For one thing, management is dedicated to maximizing its tax efficiency by paying out as much cash as possible to shareholders between now and 2011 in order to boost its tax pools.

That makes Paramount literally a highly leveraged, high cash-paying bet on natural gas prices during the next few years. In my view, that’s a very good bet, particularly given that burning more gas for electricity is the easiest way for utilities to meet likely restrictions on carbon emissions in the near term. Gas plants emit less than half the carbon of coal, for example.

What Paramount isn’t good for is conservative income investors who don’t want the volatility and don’t want to take a chance on natural gas prices remaining in a prolonged slump. Again, I don’t view this as likely. But it’s quite possible, and the stakes for Paramount and its shareholders are quite high.

The reason I feature so many of the “safe” oil and gas producers and service trusts is that they’re much more able to weather such ups and downs. This summer, for example, ARC, Enerplus and others are likely to make at least as much money from soaring oil prices as they lose from slipping gas.

Because oil and gas are substitute fuels in so many areas, gas is certain to outperform oil at some point. And these big trusts are well positioned for that as well, as surging gas will offset slipping oil.

For the Paramounts of the world, however, it’s literally all or nothing. If gas is slipping, so will these trusts’ dividends and share prices. If it’s rising, however, we’re off to the races.

The same goes for Precision Drilling, which has been hurt by the halving of activity in the Canadian gas patch but is supremely positioned to profit when it revives. And it goes for Advantage, though this trust has repositioned itself a little more conservatively by mergers, including the ongoing absorption of Sound Energy Trust (SND.UN, SNDFF).

The bottom line: I’m not any happier about sinking gas prices—or the performance of these gas-sensitive trusts—than you are. But these are a relatively small part of our conservative Canadian Edge mix, and they’ll provide a lot of upside when this market does finally turn up.

I’m sticking with them. And if you’re willing to shoulder the volatility, are not overloaded in them and want to bet on a revival in gas, you should, too.