July has been far kinder to Canadian Edge Portfolio recommendations than either May or June. With just a few days to go, most of our picks are back in range of where they were in April, the highest point since the late 2008 market crash.

This month’s gains are mostly due to the waning of fear that European sovereign debt woes could trigger a wider debacle. That was the key worry behind May’s Flash Crash, which was made all the worse for many income investors by the improper use of trailing stop-losses. And its fading has convinced at least some income investors to come out of their protective shells in search of yield.

Whether or not the recent rally continues over the next several months will depend to a large extent on sustaining that optimism. Unfortunately, that’s categorically unpredictable, and investors need to be prepared for further volatility.

The good news is that whatever happens due to market emotion is fundamentally irrelevant for income investors. What’s important is how our picks fare as businesses, and whether revenue and earnings will sustain and expand dividends going forward.

As I pointed out in the July CE, the vast majority of Portfolio picks have now either converted to corporations, won’t have to convert or have announced definitive plans to convert, along with what dividends will be afterward. All that’s left are the following:

• ARC Energy Trust (TSX: AET-U, OTC: AETUF)
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF)
• IBI Income Fund (TSX: IBG-U, OTC: IBIBF)
• Penn West Energy Trust (TSX: PWT-U, NYSE: PWE)
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)

In the case of ARC and Penn West, management has stated decisions will be made in large part based on what energy prices are when conversion is made. And both appear unlikely to make a move until the end of 2010, when the tax advantages of remaining a trust finally expire. That may also be true of Provident, though it no longer produces oil and gas after spinning out those operations and merging them with Midnight Oil and Gas to form Pace Oil & Gas (TSX: PCE, OTC: MDOEF).

As a natural gas liquids midstream company, cash flow is sensitive to the “market frac spread” between the price of refined products and gas liquids. That’s about 65 percent propane, 14 percent normal butane, 11 percent iso-butane and 10 percent natural gasoline. The company hedges much of this exposure but cash flow still depends heavily on the spread.

Management still expects to hit its 2010 full-year cash flow target of CAD200 million to CAD230 million, though at the “lower portion of the range,” as prices have dipped. That could affect the post-conversion distribution, though the uncertainty is priced into the 10 percent-plus yield. Investors should be sure to adjust their cost basis for Provident down by approximately USD0.98 per unit to reflect the 0.12225 shares of Pace received earlier this month.

Provident Energy Trust remains a buy up to USD8 for those who don’t already own it. Pace Oil & Gas is a hold. ARC Energy Trust and Penn West Energy Trust are buys up to USD23 and USD22, respectively, as undervalued and strong bets on energy.

As for CML Healthcare Income Fund and IBI, I expect to hear more on their future conversions and distribution policies when they release second-quarter earnings.

In other Portfolio news, AltaGas (TSX: ALA, OTCL ATGFF) is again trading in the US under the over-the-counter symbol ATGFF, as it did before converting to a corporation in early June. The dividend rate is CAD0.11 per month, for a current yield of about 6.6 percent. Shares of the power and gas infrastructure company are back to a post-2008 crash high; AltaGas is a buy up to USD20.

Atlantic Power Corp (TSX: ATP, NYSE: AT) are now listed on the New York Stock Exchange, a move that should allow more accretive acquisitions and ultimately dividend growth. The USD40 million investment in the Idaho Wind Partners project diversifies the portfolio and should lock in strong cash flow for years to come. I expect more guidance on cash flow with the second quarter earnings release. Until then, Atlantic Power Corp is a buy on dips to USD12 or lower.

Note my advice to sell Boralex Power Income Fund (TSX: BPT-U, OTC: BLXJF) stands, despite the improved offer. The deal is still for every 20 units of the Income Fund to be swapped for a convertible bond maturing in 2017, with the rest for cash at that rate.

The interest rate is improved to 6.75 percent from 6.25 percent and the conversion price has been cut to CAD12 from CAD17 for Boralex Inc (TSX: BLX, OTC: BRLXF), making it more likely for the convertible price to move above CAD100 by maturity. But there’s still the problem of US brokers being generally unable to handle foreign fixed income securities. Make sure your broker can handle it before you take this deal. Otherwise sell Boralex Power Income Fund.

Here’s when our picks will be reporting their second-quarter earnings. All of those reporting by Aug. 5 will be analyzed in the August issue of Canadian Edge, available a week from Friday. The rest will be highlighted in a series of Flash Alerts, with the last immediately following the final releases, which are currently expected on Aug. 13.

Note Paramount Energy Trust has converted to a corporation and changed its name to Perpetual Energy (TSX: PMT, OTC: PMGYF). The Toronto Stock Exchange and US OTC symbols are unchanged, as is the monthly distribution.

Aggressive Holdings

• Ag Growth International (TSX: AFN, OTC: AGGZF)–August 11 (confirmed)
• ARC Energy Trust (TSX: AET-U, OTC: AETUF)–August 4 (confirmed)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–July 28 (confirmed)
• Daylight Energy (TSX: DAY, OTC: DAYYF)–August 5
• Enerplus Resources Fund (TSX: ERF-U, NYSE: ERF)–August 6 (confirmed)
• Newalta Income Fund (TSX: NAL, OTC: NWLTF)–August 6
• Perpetual Energy (TSX: PMT, OTC: PMGYF)–August 6
• Penn West Energy Trust (TSX: PWT-U, NYSE: PWE)–August 5 (confirmed)
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)–August 12
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)–August 13
• Trinidad Drilling (TSX: TDG, OTC: TDGCF)–August 11 (confirmed)
• Vermilion Energy Trust (TSX: VET-U, OTC: VETMF)–August 6

Conservative Holdings

• AltaGas (TSX: ALA, OTC: ATGFF)–July 29 (confirmed)
• Artis REIT (TSX: AX-U, OTC: ARESF)–August 11 (confirmed)
• Atlantic Power Corp (TSX: ATP, OTC: ATLIF)–August 9 (confirmed)
• Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF)–July 28 (confirmed)
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF)–August 11
• Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF)–August 9 (confirmed)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–August 10 (confirmed)
• Cineplex Galaxy Income Fund (TSX: CGX-U, OTC: CPXGF)–August 12 (confirmed)
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF)–August 12
• Davis + Henderson Income Fund (TSX: DHF-U, OTC: DHIFF)–August 10 (confirmed)
• IBI Income Fund (TSX: IBG-U, OTC: IBIBF)–August 5
• Innergex Renewable Energy (TSX: INE, OTC: INGXF)–August 13
• Just Energy Income Fund (TSX: JE-U, OTC: JUSTF)–August 6
• Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF)–August 4 (confirmed)
• Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF)–August 9 (confirmed)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–August 4 (confirmed)
• Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF)–August 5 (confirmed)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–July 29 (confirmed)
• TransForce (TSX: TFI, OTC: TFIFF)–July 29 (confirmed)
• Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF)–August 6