Buying and holding dividend-paying stocks backed by strong underlying businesses: That remains my primary goal in this advisory. And there’s no time like earnings reporting season to assess if our holdings are stacking up as they should.

The 2008 crash and its aftermath proved once again that stocks of strong, dividend-paying companies will recover from the worst ravages market forces can dish out. And with our holdings if anything much stronger as businesses than they were three years ago, I expect nothing less should the market’s current troubles cause a real unraveling.

The key is to use second-quarter reporting season to take a critical look at every company you own. If they are still healthy and growing, they’re worth holding. If not, we’ll want to be selling and moving along to something else.

The good news is the first three Canadian Edge Portfolio companies to report have turned in some rather decent numbers. That’s not only confirmation of my decision to own them, but a favorable portent for the companies yet to report as well.

Acadian Timber Corp (TSX: ADN, OTC: ACAZF) benefitted from what CEO Reid Carter called a “relatively strong” second-quarter market for hardwood and softwood sawlogs and pulpwood, with “demand and pricing for hardwood pulpwood being particularly strong.” Net sales were 3 percent lower than year-ago levels in what’s normally a seasonally weak quarter, mainly because wet weather late in the quarter delayed production startup following the spring break-up. Average selling prices, however, were up 9 percent across all product lines.

Six-month cash flow covered the distribution by a steady 1.02-to-1 margin. Meanwhile, the second-quarter seasonal free cash flow deficit–cash flow less maintenance capital costs–fell by more than 90 percent. That enabled free cash for the six-month period to surge 52.9 percent, providing solid support for the hefty dividend increase enacted with the Apr. 15 payment.

Six months cash flow margins rose to 26 percent from 23 percent a year ago, mainly on robust pricing. Production costs were up 8 percent. That, however, was in large part due to a greater weighting in the selling mix of output sold to more distant markets, particularly hardwood pulpwood. Importantly, the company had “no recordable safety incidents among employees.”

Looking ahead, management’s expectation is for “recovery of US housing to remain very weak.” That, however, continues to be offset by “active operations” among softwood sawmilling customers as export demand outside North America remains strong. And despite what appear to be consensus expectations for softer global pulp markets, Acadian’s major hardwood pulpwood customers are “actively competing for deliveries,” according to management.

As a result, the company is “cautiously optimistic for the remainder of 2011.” Moreover, as I pointed out when we initially recommended this stock, the dividend appears set to reflect very conservative business assumptions. Debt for one thing appears well under control, with the company shaving interest expense by 41.8 percent from last year’s levels. There are no meaningful debt maturities until March 2016.

Acadian is a producer of natural resources, and its earnings are affected by changes in commodity prices. That’s why the stock is an Aggressive Holding rather than a Conservative Holding.

But with an extremely valuable resource in eastern Canada and the northeast US, modest leverage, diversified markets and a powerful parent in Brookfield Asset Management (TSX: BAM/A, NYSE: BAM), Acadian is a very conservative bet on Canada’s timber wealth. Still trading at barely book value, the stock’s a buy up to USD13 for those who haven’t yet bought it.

AltaGas Ltd (TSX: ALA, OTC: ATGFF) reported second-quarter funds from operations (FFO) of CAD0.56 per share, up from 54 cents a year ago. FFO excludes the impact of mark-to-market accounting on financial instruments that level out actual volatility in cash flow. Operating income at the company’s natural gas infrastructure and power operations ticked up 2.9 percent, as strength in the former offset the impact of weaker wholesale power prices in Alberta on the latter.

AltaGas’ long-term profit growth and ability to deliver on management’s forecast of accelerating dividend growth rest squarely on its capital program. The company reports current projects are both on time and on budget. Significant developments in the second quarter include winning final regulatory approval to build the CAD235 million Gordondale gas plant, expected to be fully on line by late 2012 and partially operable in the third quarter of this year. The company also progressed on a number of smaller projects, mostly expansions of existing facilities.

Second-quarter FFO covered quarter dividends by a 1.7-to-1 margin and six-month coverage was a very robust 2-to-1. That made it possible for the company to spend CAD76.5 million on new capital projects, up 84.8 percent from a year ago, without adding significantly to debt. Cash from operations per share was higher by 41.9 percent.

Speaking to BMO Capital Markets North American Pipelines & Utilities Conference last month, AltaGas CEO David Cornhill projected the company’s steady stream of new projects would generate enough cash flow to fund “modest dividend growth” until 2014, when the Forest Kerr facility would come on lien. At that point, he forecasted “acceleration” as part of the company’s “basic strategy” of “balanced growth and growth in yield.”

These numbers and management’s comments following their release continue to point in that direction. My only concern with AltaGas is the stock appears to be pricing in that good news and a bit more. The news does warrant a lift in my buy target to USD26, but that’s still a bit below the current price. If you haven’t yet bought into this blue chip energy infrastructure company, be patient and wait for that price. AltaGas is a buy on dips to USD26.

Colabor Group Inc’s (TSX: GCL, OTC: COLFF) management assured investors back in early May that disappointing first-quarter earnings would be a one-time event. Second-quarter results released this month still had their weak points, due to intense competition among food service distributors particularly in Quebec. Encouragingly, the company was able to offset those pressures and more with its successful strategy of growth through acquisitions.

Second-quarter sales surged to CAD317.4 million, up from CAD245.2 million. That robust 29.5 percent increase was mainly fueled by CAD75 million in new sales resulting from acquisitions, as comparable sales (excluding takeovers) actually slipped 1.1 percent, due to a 2.9 percent dip in wholesale activity. Adverse weather conditions also played a role in the decline. But with the company completing several more deals during the quarter, we should see further gains the rest of 2011, even if the market stays weak.

Importantly, Colabor was able to turn those higher sales into a 13.7 percent jump in cash flow during the quarter. Cash flow margin improved to 3.22 percent of sales, up from 2 percent in the first quarter and back in the neighborhood of a year earlier 3.67 percent. One reason: The company was able to recover fuel costs that were in large part responsible for last quarter’s cash flow shortfall.

During the company’s second-quarter conference call longtime CEO and President Gilles C. Lachance noted the 12-month payout ratio was a moderate 86 percent. Responding to a question about dividend policy, he stated it was set by the board, but that “there was some (investor) concern back in early May and June and we just announced the dividend that was paid last week…the same amount that we paid last year the same time.” That’s a reasonable affirmation the current dividend is solid, despite the investor skepticism implicit in the high yield.

Future safety will depend on the company executing its business plan. The third quarter will mark the first full period after the company’s completion of its acquisition of SKOR, an Ontario-based wholesale food supplier to the food service and retail industries. The SKOR purchase adds CAD138.1 million in annual sales but also numerous opportunities to cut expenses and expand operating scale in Canada’s most important province.

The company continues to focus on geographic expansion, with Western Canada the next major target. And we’ll see a continuation of the strategy when Claude Garipy, a director since 2007, becomes CEO in January 2012. The rest of this year, meanwhile, management expects to see improving margins due to synergies as well as seasonal factors.

Finances remain solid, with interest coverage of 5.11-to-1 far exceeding the required minimum level of 3.5-to-1 under bank covenants. Excluding one-time items, meanwhile, total debt to cash flow came in at just 2.58-to-1, well below the 3.0-to-1 level stipulated. The company has also repurchased 111,000 of its shares under a program to buy back up to 500,000 shares (2.2 percent of total outstanding).

There’s still a 7 percent convertible bond set to mature at the end of 2011. The total amount due of CAD14.267 million, however, is just 6.4 percent of Colabor’s market capitalization and 6.7 percent of current assets, giving the company plenty of room to pay it off if capital market conditions make refinancing not desirable. And there are no other maturities until 2016.

The bottom line is Colabor remains a well-run company with strong finances and steady cash flows despite what remain tough operating conditions. Accordingly, I’m reinstating the stock as a buy up to USD10 for those who don’t already own it.

One other CE Portfolio company recently announcing significant news is Bird Construction Inc (TSX: BDT, OTC: BIRDF). The company reached a deal to acquire rival contractor HJ O’Connell Ltd for CAD77.5 million. The merger adds operations in three provinces where Bird doesn’t currently operate, and it will nearly double the company’s workforce. O’Connell is involved in heavy construction, civil construction and surface mining, complementing Bird’s existing operations neatly.

Closing is expected by the end of August, at which time the new operations are expected to immediately begin boosting Bird’s bottom line. The deal has already had a salutary effect on Bird’s share price, which unfortunately now exceeds my buy target of USD12. If you didn’t get in during the nearly two months it was below that level, don’t jump now. I will raise my buy target for Bird again, but only after management comes through with another dividend increase. If you own Bird, stick with it.

Here are confirmed or estimated announcement dates for the rest of the CE Portfolio Holdings. Look for companies reporting between now and Aug. 5 to be analyzed in the August issue of Canadian Edge, which will be e-mailed and posted to www.CanadianEdge.com on Friday, Aug. 5. The rest will be highlighted in subsequent Flash Alerts.

Conservative Holdings

• Artis REIT (TSX: AX-U, OTC: ARESF)–Aug. 10 (confirmed)
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–Aug. 12 (confirmed)
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–Aug. 5 (estimate)
• Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPUF)–Aug. 5 (confirmed)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–Aug. 9 (confirmed)
• Capstone Infrastructure Corp (TSX: CSE, OTC: MCQPF)–Aug. 12 (confirmed)
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–Aug. 11 (confirmed)
• Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–Aug. 9 (confirmed)
• Extendicare REIT (TSX: EXE-U, OTC: EXETF)–Aug. 9 (confirmed)
• IBI Group Inc (TSX: IBG, OTC: IBIBF)–Aug. 12 (confirmed)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–Aug. 10 (confirmed)
• Just Energy Group Inc (TSX: JE, OTC: JUSTF)–Aug. 12 (estimate)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–Aug. 3 (confirmed)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–Aug. 9 (confirmed)
• Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF)–Aug. 3 (confirmed)
• Provident Energy Ltd (TSX: PVE, NYSE: PVX)–Aug. 10 (confirmed)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–Aug. 5 (confirmed)
• TransForce Inc (TSX: TFI, OTC: TFIFF)–Aug. 1 (confirmed)

Aggressive Holdings

• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–Aug. 12 (confirmed)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–Aug. 4 (estimate)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–Aug. 4 (confirmed)
• Daylight Energy Ltd (TSX: DAY, OTC: DAYYF)–Aug. 3 (estimate)
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–Aug. 8 (confirmed)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–Aug. 5 (confirmed)
• Newalta Corp (TSX: NAL, OTC: NWLTF)–Aug. 5 (estimate)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–Aug. 12 (estimate)
• Penn West Petroleum Ltd (TSX: PWT, NYSE: PWE)–Aug. 10 (confirmed)
• Perpetual Energy Inc (TSX: PMT, OTC: PMGYF)–Aug. 10 (estimate)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–Aug. 11 (estimate)
• PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–Aug. 5 (estimate)
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–Aug. 9 (estimate)
• Yellow Media Inc (TSX: YLO, OTC: YLWPF)–Aug. 4 (confirmed)