Healthy underlying businesses: That’s what we look for with Canadian Edge Portfolio recommendations. And that’s why we put all of our picks under the microscope every time they release their financials.

Fourth-quarter earnings reporting season is always an exercise in patience. Companies in the US and Canada alike must comply with many more reporting requirements with their year-end statements, as opposed to quarterly documents. As a result, filings always come in later, and we have to wait longer to get a read on the health of our companies.

Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF) was the only Portfolio company to report fourth-quarter and full-year 2009 earnings in time for the February CE. I highlighted the company’s still-strong prospects in the High Yield of the Month. Bell units are still cheap, selling below book value and with a yield of 11.4 percent, mainly because it has yet to announce its post-conversion dividend policy. Consequently, there’s little risk to buying it up to my target of USD27.

Since the February issue was published, five more Portfolio companies have reported results, which I recap and analyze below. I’ll be updating the rest Flash Alerts and in Maple Leaf Memo as news comes available.

Here are expected reporting dates for those with numbers still to come:

Conservative Holdings

• AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF)–February 26
• Artis REIT (TSX: AX-U, OTC: ARESF)—March 16
• Atlantic Power Corp (TSX: ATP, OTC: ATLIF)–March 30
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF)—March 19
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–February 24
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF)–March 4
• Colabor Group (TSX: GCL, OTC: COLFF)—March 4
• Davis + Henderson Income Fund (TSX: DHF-U, OTC: DHIFF)—February 24
• IBI Income Fund (TSX: IBG-U, OTC: IBIBF)—March 17
• Innergex Power Income Fund (TSX: IEF-U, OTC: INRGF)–March 16
• Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF)–February 18
• Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF)—March 2
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–March 17
• Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF)–March 3
• TransForce (TSX: TFI, OTF: TFIFF)–February 25

Aggressive Holdings

• Ag Growth International (TSX: AG-U, OTC: AGGZF)–March 16
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–February 19
• Daylight Resources Trust (TSX: DAY-U, OTC: DAYYF)–March 4
• Enerplus Resources Fund (TSX: ERF-U, NYSE: ERF)–February 26
• Newalta (TSX: NAL, OTC: NWLTF)–March 5
• Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF)–March 10
• Penn West Energy Trust (TSX: PWT-U, NYSE: PWE)–February 18
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)–March 10
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)–March 11
• Trinidad Drilling (TSX: TDG, OTC: TDGCF)–March 3
• Vermilion Energy Trust (TSX: VET-U, OTC: VETMF)–March 26

ARC Energy Trust (TSX: AET-U, OTC: AETUF) beat expectations as it dropped its payout ratio down to just 50 percent, while cutting debt to just CAD902.4 million from CAD961.9 million a year ago. Operating costs per barrel of oil equivalent (boe) produced were cut CAD9.91 from CAD10.09 a year ago.

As has been the case since energy prices peaked in mid-2008, year-over-year comparisons have suffered mainly because of energy prices. But fourth quarter showed distinct signs of a turnaround even in this area, as ARC realized average prices of USD72.61 per barrel for its oil output and USD4.58 per thousand cubic feet of natural gas sold.

Those healthy figures reflect management’s conservative hedging policies, which have to date locked up prices for 34 percent of the company’s expected production in 2010. That in turn has allowed ARC to maintain high levels of output, even as its been able to replace 347 percent of its full-year output. That kind of reserve growth is a major plus for the trust longer-term, and particularly as it converts to a corporation at the end of this year.

The company remains vulnerable to another dip in energy prices. But with realized prices still below spot, there appears to be a lot more upside than downside risk going forward in 2010. In addition, ARC’s finding, development and acquisition costs (FD&A) fell to only CAD6.44 per boe, a testament to its new finds in the Montney Shale area as well as use of new technology. Proved reserve life now stands at 10.3 years.

Management hasn’t yet confirmed its timetable for conversion to a corporation or its post-conversion dividend policy. It did state with fourth quarter earnings its intentions for a unitholder vote on conversion in December 2010 and that “current plans would see a dividend policy similar to the existing distribution policy with dividends being paid monthly.” That’s a very good sign for the future payout, though again the amount will depend heavily on where oil and gas prices are then.

The bottom line is ARC has weathered the tough times and remains well positioned to profit from the recovery. Moreover, it’s still cheap relative to its assets, trading at a discount to the net asset value of what it has in the ground. Buy ARC Energy Trust up to USD20 if you haven’t yet.

Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF) is increasing its monthly distribution by 4 percent to an annualized rate of CAD1.30 a share. That’s the latest affirmation of strength from this renewable energy producer trust, which plans to convert to a corporation later this year.

Fourth quarter revenue climbed more than 120 percent, while net income surged 110.2 percent, reflecting the successful absorption and operation of the assets acquired from parent and 50.1 percent owner Brookfield Asset Management (TSX: BAM/A, NYSE: BAM). There was also a positive impact from strong plant operations, good water flows in most regions and higher rates from two power sales contracts.

Overall generation was up 47 percent, again mainly reflecting the new assets. The price per megawatt hour sold rose 50 percent, reflecting in large part the increased output from wind.

With expansion plans on track and finances healthy, Brookfield Renewable Power Fund remains a bedrock buy up to USD19 for those who don’t already own it.

Just Energy Income Fund (TSX: JE-U, OTC: JUSTF) has now formally announced its conversion to a corporation, with a target date of the fourth quarter of calendar 2010 to maximize tax advantages. Importantly, management also announced it will maintain its current monthly distribution of 10.33 cents Canadian when it makes the switch.

The company has long maintained it could cover its payout and absorb a higher tax rate, by virtue of its sold growth strategy. The latter was again in evidence in the company’s fiscal 2010 third-quarter (ended Dec. 31, 2009) numbers. Seasonally adjusted sales were up 7 percent, gross margin expanded by 17 percent and average margin per customer surged 11 percent.

That was in large part due to the continuing success of Just Energy’s “Just Green” marketing plan, under which customers buy electricity from renewable sources. Just Green was responsible for 37 percent of all new customer volumes. The company also continued to reap the benefits from last year’s buyout of competitor Universal Energy.

Overall, the company boosted its long-term customer base by 28.5 percent to a combined 2.28 million on both sides of the border. That was despite a very weak market in the recession-hit US operations, where the company nonetheless added both electricity and natural gas customers.

Distributable cash flow in the quarter after marketing expenses grew 27 percent, enabling the company to pay a special distribution of CAD0.20 per share, while covering its regular payout by a very strong 1.5-to-1 margin. Management forecasts 5 to 10 percent gross margin growth again in the fiscal fourth quarter, assuring solid coverage going forward as well. Still yielding nearly 9 percent, Just Energy Income Fund remains a strong buy up to USD14.

RioCan REIT (TSX: REI-U, OTC: RIOCF) posted fourth-quarter and full-year 2009 results that lagged some estimates. The result has been some weakness in the shopping mall owner’s unit price since the numbers came out.

The underlying portfolio still looks very solid. Occupancy was again strong at 97.4 percent, while the balance sheet is steady with debt-to-gross book value low at just 55.6 percent. Rental revenues, meanwhile, were basically flat year over year, despite economic pressures on the retail businesses that are typically RioCan’s customers.

Rather, the shortfall in fourth-quarter distributable cash flow per share is basically due to the same factors as during the rest of the year: management’s refusal to deploy its vast cash hoard until it’s been absolutely ready to move. RioCan also took larger allowances for amortization (non-cash), future income taxes (also non-cash) and impairment of investments (also non-cash). Finally, equity issues diluted income per share, pushing the payout ratio for the quarter to 123.2 percent.

On the plus side, the REIT made CAD257 million in fourth-quarter acquisitions that are only partly reflected in current results but will boost income throughout in 2010. They also don’t reflect the CAD184 million in acquisitions made after the first of the year. Management also had CAD147 million of cash on hand at year’s end for further growth and remains well below its charter target of 60 percent debt-to-gross book value–enabling it to issue CAD379 million of additional debt without issuing new equity.

Getting the payout ratio back under 100 percent will require management to execute on its recent acquisitions as well as further deals planned. The REIT expects to do much better than that, stating its “portfolio is performing well and operating metrics are strong.”

The company continues to experience heightened vacancies but has been able to refill them reasonably quickly. And reading from the latest conference call, management states its “costs” adjusting to the recession are “behind” it and expects “the velocity of our FFO over the course of 2010…will be quite interesting and even dramatic.”

I look to see improved distribution coverage as 2010 progresses and the new properties start to add to the bottom line. RioCan REIT remains a solid buy up to USD20 for those who don’t already own it.

Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF) hasn’t given investors too many upside surprises the past few years. That made its fourth quarter numbers very welcome indeed for us.

The company posted online organic growth–excluding acquisitions–of 24 percent, the latest evidence that its successful transition from a print to web-based directory world continues. Online initiatives included new applications for smart phones, including Blackberry, Google Android and iPhone.

Revenue and income from operations before goodwill impairment were basically flat from 2008, but cash flow from operating activities ticked up 8.4 percent. Overall revenue from the directory business was up 1.9 percent and cash flow ticked ahead 0.5 percent, despite the recession’s impact on advertising in general. Cash flow margins actually rose slightly to 58.8 percent from 58.7 percent a year ago.

As was the case for all of 2009, Yellow’s primary point of weakness has been the Trader business, which is still getting hit from exposure to the automobile and real estate industries. Fourth-quarter revenues fell 12.3 percent–excluding the sale of US assets–and cash flow margin slipped to 26.7 percent from 32.6 percent.

That’s hardly ideal, but nonetheless an improvement from earlier in the year and a good sign management’s restructuring is working there as well.

Along with its numbers, Yellow also announced a timetable for its conversion to a corporation in late 2010, as well as what its post-conversion dividend will be. The new monthly rate will be roughly 5.4 cents Canadian for an annualized rate of CAD0.65. That’s down from the current annualized rate of CAD0.80, though considerably better than the market was pricing in.

The old rate will be maintained until the end of 2010 and continues to be covered comfortably by distributable cash flow (payout 58.9 percent in fourth quarter). Meanwhile, the new rate still equates to a yield of 11.5 percent and a payout ratio of just 60 to 70 percent based on expected cash earnings per share.

Yellow’s second dividend cut in as many years is yet another sign that management didn’t foresee the weakness in its business a couple years ago, when it was maintaining the trust could hold its dividend after converting to a corporation despite the taxes. But Yellow has made good on perhaps a far more important pledge–to bring down its once-daunting debt load.

The company has now fully paid off its bank debt, eliminated refinancing risk through 2013 and cut debt-to-cash flow to just 2.5-to-1, from 3-to-1 last year. That’s a stark contrast to its bankrupt rivals in the US and a vote of confidence that the worst is behind this company.