Strong underlying businesses are the key to building wealth. That’s true whether you’re the most conservative investor in search of a safe yield or an aggressive player swinging for the fences.

Every earnings season, companies release a wealth of data on the health of their operations and balance sheet. Headline profit per share and sales numbers usually grab investors’ attention. More important, however, are the myriad numbers inside the big ones that indicate whether businesses are getting stronger or weaker, both relative to their industries and in the context of the prevailing market and economic winds.

Without doubt, the past 12 months have been among the toughest on record for businesses. More than a few of the trusts and high-yielding corporations in the Canadian Edge Portfolio posted higher sales and profits–measured for trusts with distributable cash flow–compared with year-earlier tallies. The upshot from their results couldn’t be more unequivocal: Their extremely strong businesses can make it through just about anything, and they’re safe enough for even the ultra-conservative.

Many, however, came up short on that yardstick. For example, there’s simply no way any oil and gas producer trust could have posted higher year-over-year distributable cash flow with oil prices half last year’s levels and gas at one-third their highs. In fact, year-over-year profit comparisons are basically irrelevant to gauging their strength; different metrics–such as trends in production, debt and operating costs–are called for.

In the November Canadian Edge I highlighted results of 15 Portfolio trusts and high-yielding corporations. The chief overall positive was that all but one–Consumers’ Waterheater Income Fund (TSX: CWI-U, OTC: CSUWF)–did meet my recession benchmarks. Mainly, underlying sales and market share were solid, debt was kept under control, costs were held down, and distributions were well covered with distributable cash flow.

Admittedly, oil and gas producers’ dividend coverage was accomplished mainly because of steep reductions in distributions made over the past year as management teams dug in for hard times. Conservative Holdings, however, have largely held their distributions steady throughout the recession, a remarkable achievement that all but Consumers’ showed every sign of continuing while the North American economy recovers.

Happily, the trusts that have reported since the November issue was published on Friday are also flashing green to investors, which means no additional changes to our holdings at this point. All are still measuring up to what are plainly deplorable conditions.

Below, I highlight the important numbers and their implications.

By this time next week, most of the rest should have reported as well, and I’ll be sending out another have a Flash Alert at that time. CE’s weekly companion Maple Leaf Memo will also include summaries of Portfolio earnings as well as those of select How They Rate constituents.

Finally, the December issue will include a full wrapup of all of the numbers reported since the November issue. Here are the approximate reporting dates for those Portfolio members yet to issue numbers:

Conservative Holdings

• Artis REIT (TSX: AX-U, OTC: ARESF)–November 11
• Atlantic Power Corp (TSX: ATP-U, OTC: ATPWF)–November 10
• Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF)–November 10
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–November 13
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF)–November 11
• Northern Property REIT REIT (TSX: NPR-U, OTC: NPRUF)–November 12

Aggressive Holdings

• Ag Growth International (TSX: AFN, OTC: AGGZF)–November 12
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–November 11
• Enerplus Resources Fund (TSX: ERF, NYSE: ERF)–November 13
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)–November 11
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)–November 12

Good Numbers

ARC Energy Trust (TSX: AET-U, OTC: AETUF) sold its oil at an average price of just USD67.74 during the third quarter of 2009 versus USD114.20 a year ago. Its gas, meanwhile, fetched just USD3.25 per thousand cubic feet versus USD8.68. That cut overall revenue and cash flow from operating activities roughly in half.

Looking beneath those numbers, however, ARC’s vitals are still very strong. Production basically held flat (a 2.3 percent decline) and the company cut its operating costs from CAD10.19 to CAD9.68 per barrel of oil equivalent. The company continued to develop its prolific Montney shale play on time and on budget, boosting needed infrastructure.

And net debt was actually cut 8.8 percent, as the trust financed its efforts with internally generated cash flow coupled with an equity issue. The distribution was extremely well covered with a payout ratio of just 56 percent.

Like all energy trusts, ARC remains largely at the mercy of volatile oil and gas prices. These results, however, show the trust is well-positioned for these tough times, even as its consistent capital budget lays the groundwork for much fatter and sustainable profits for the long haul.

ARC plans to convert to a corporation, probably by the end of 2010. At that point, it intends to continue to pay a high dividend, though the actual amount will depend more heavily on what happens to energy prices than anything else. But trading well below net asset value, ARC Energy Trust is a buy up to USD20 regardless.

Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF) saw its overall revenue drop 14.5 percent from last year’s levels as the volume of energy patch construction projects declined. Income before taxes, however, rose 7.1 percent, even as the trust boosted its order backlog back above CAD1 billion, as it continues to win government-backed and therefore recession-proof contracts.

The monthly distribution of CAD0.15 per share was again well covered by net income, with the payout ratio on that basis just 44.5 percent. Given that the company maintains huge cash surpluses and no debt, that’s a level that should be easily maintainable even after 2011 taxes, though management has to date not said what its plans are.

Again, I’m not a mind reader, and it’s up to management what it will do about its dividend. But these are the signs of a very strong business. Bird Construction Income Fund therefore remains a buy up to USD33 for those who haven’t already picked up shares.

Innergex Power Income Fund (TSX: IEF-U, OTC: INGRF) hit several key metrics in its third quarter. Wind power production rose 12 percent above its long-term average, hydro production was 5 percent above average, and the payout ratio was 95 percent of distributable cash flow. That continued the pattern of steady declines despite lower year-over-year power plant output due to weather conditions. And management was able to continue to accumulate cash, a key corporate goal.

The nine-month payout ratio was 93 percent, down from 101 percent last year. Management’s approach has been to accumulate assets over time that improve cash flow and further shore the current distribution rate, and that strategy remains on track. That should bode well for the dividend after 2011, when the trust will almost certainly convert to a corporation, though management has yet to set definite parameters.

But at just 1.5 times book value and yielding nearly 10 percent, it’s hardly expensive either. Buy Innergex Power Income Fund up to USD12 if you haven’t yet.

Just Energy Income Fund (TSX: JE-U, OTC: JUSTF) reported a 43 percent jump in gross margin and a 26 percent increase in distributable cash flow in its fiscal second quarter. Customer additions were at a record, and distributable cash after all marketing costs–what amounts to capital spending for Just Energy–rose 19 percent. The trust’s green energy programs remain extremely popular, with 41 percent of new customers taking an average of 78 percent green.

Just Energy will pay a special distribution of between CAD0.10 and CAD0.15 per share to “true up” income and limit taxes. More important, however, CEO Rebecca MacDonald states “the growth we have noted in the second quarter is another step toward our goal of growing our cash flow by the 2011 trust tax conversion date with the expectation that a converted Just Energy would be able to pay CAD1.24 in dividends replacing the more heavily taxed CAD1.24 distribution.”

Of course, MacDonald goes on to state that “this cannot be assured.” But citing the accretive impact of this year’s Universal acquisition on 2011 earnings and beyond, she states she’s “optimistic this is a reasonable expectation.”

That’s very good news for unitholders, who continue rake in dividends of over 9 percent in addition to the hefty capital gains we’ve seen this year. Just Energy Income Fund remains a buy up to USD14.

Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF) reduced its third quarter output of 100 percent natural gas by 17 percent from year-earlier levels. That was mostly due to a decision by management to shut in production for now in order to wait on higher prices. Realized gas prices slipped to CAD7.51 per thousand cubic feet, only down 14 percent from year-earlier levels due to management’s policy of aggressively hedging output.

The trust’s payout ratio, however, came in at only 30.7 percent of funds from operations, down from 44 percent a year earlier. That was entirely due to the cut in the distribution, but it does bode well for the current level of payout even in today’s abysmal conditions. So does continued debt reduction, as net debt was cut another CAD23 million during the quarter to CAD295.5 million.

A plan put to holders of Paramount’s convertible bonds, if successful, will further strengthen the balance sheet by pushing out the maturity to 2016 from 2013. So, ironically, could a decision by Alberta regulators to order a shut-in of wells located near potential oil sands production, which would essentially pay the trust for not producing.

As is always the case, Paramount’s dividend depends on what happens to natural gas prices more than anything else. And to be sure, gas is one banged up market. On the other hand, management continues to prove its skill at keeping the business on track, and this is one trust that’s certainly in super position when gas does recover. Paramount Energy Trust is a buy for speculators up to USD5.

Vermilion Energy Trust (TSX: VET-U, OTC: VETMF) shut in approximately 1,000 barrels of oil equivalent production a day in the third quarter in Canada. That pulled down overall output from second quarter 2009 as well as year-ago levels.

The company, however, continued to advance its drilling program elsewhere, particularly in Europe. The offshore Irish field Corrib in which the company acquired an interest earlier this year continue to advance toward an in service date of late 2010, at which time it will dramatically boost output.

Like all trusts, Vermilion suffered from the sharp drop in energy prices over the past year, with fund flows from operations per share falling almost in half. The payout ratio, however, still came in at just 59 percent, as cash flow essentially covered distributions and capital expenditures outside of Corrib.

Looking ahead, management expects to meet production guidance for 2009 and 2010 and continues to ramp up capital spending. Its stated goal is now “to maintain current distribution levels” after converting to a corporation at the end of September 2010. That’s very good news indeed, though meeting it will depend heavily on energy prices as well as getting the Corrib field producing on time and on budget.

The pending sale of the company’s stake in Verenex Energy (TSX: VNX, OTC: VRNXF) to the Libyans should provide a healthy chunk of cash for the effort by early next year at the latest. Vermilion Energy Trust, our most conservative oil and gas producer play, is a buy up to USD30.