We’ve seen something of a recovery rally in most of our Canadian Edge Portfolio picks the past day or so. That was after a thrashing on Monday that in turn was a continuation of what happened the week before.

The markets are still on hyper-alert about the US economy and the impact a potential slide into recession would have on other countries like Canada. As I pointed out in the August issue and again in Monday’s Flash Alert, our picks are well protected against an economic relapse, and second-quarter earnings numbers are again demonstrating that. There’s also limited credit market exposure, and the Canadian dollar shows signs of becoming a safe-haven currency as well.

All that won’t stop panic-stricken investors on both sides of the border from unloading en masse on a bad day. But it does mean that the lower prices we are seeing now are a buying opportunity, provided investors adhere to the principles of portfolio balance–and not loading up on a single or falling stock.

Meanwhile, the second quarter numbers we are seeing are encouraging indeed. Extendicare REIT (TSX: EXE-U, OTC: EXETF) has put to rest any worries the newly announced cuts in Medicare payments would affect its dividend. Concurrent with the owner and operator of nursing home centers’ second-quarter earnings release, CEO Tim Lukenda stated:

We believe that Extendicare is a financially stable company with a conservative capital structure and payout ratio. The ownership of our real estate assets coupled with our geographic diversity position us favourably to address these challenges. We intend to implement specific operating plan changes to mitigate as much of the impact of the final rule as possible. And because we believe quality is key to our business, we continue to ensure that our residents receive quality care and services. We are confident that these efforts, combined with our strategic marketing initiatives, will enable us to be successful in this difficult environment. Consequently, we are comfortable in maintaining our distributions at the current level.

That was borne out in what were solid second-quarter numbers, including a drop in Extendicare’s payout ratio to 66 percent. The company projects a CAD13 million to CAD23 million hit to its annualized cash flow from the announced 11.1 percent cut in Medicare payments. It’s targeted CAD15 million to CD20 million in spending cuts to offset. And, as I note in the August High Yield of the Month, recent refinancings will shave CAD14 million in costs, increasing cash flow by a similar amount.

The likelihood of a dividend increase is now considerably less than what management was hoping a few months ago. But the current payout–which equates to a yield of around 10 percent–now appears secure. Accordingly, Extendicare REIT is still a solid buy up to USD12.

Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF) had not as of this writing announced second-quarter numbers. But the 3 percent boost in its quarterly dividend to an annualized rate of CAD1.24 per share is the best possible sign things are going well at this provider of forms to Canada’s rock solid banking system.

The pullback has taken the company’s stock down below my buy target for the first time in a while. Buy Davis + Henderson up to USD20 if you haven’t yet as this company returns to dividend growth.

Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF) has made a habit of reporting reliably strong earnings over the years, and the second quarter was absolutely no exception. The payout ratio came in once again very low at 78.1 percent, despite slightly lower funds from operations per share.

Average monthly rents rose 2.5 percent and occupancy rose to 98.4 percent from 98 percent a year earlier. Rather, the lower per share FFO was due to an issue of shares, which strengthened the balance sheet and financed acquisitions that will spur future cash flow.

I’m not looking for much in the way of dividend growth with this one. But yielding several percentage points more than US counterparts–despite a higher-quality portfolio–this is my favorite bet on North American apartments for conservative investors. And it now trades below my buy target of USD20 as well.

Similarly, investors in Northern Property REIT (TSX: NPR-U, OTC: NPRUF) also have few worries, even if the Canadian and US economies should slow markedly in coming months. That was true in 2008 and if robust second-quarter earnings are any guide, the company is even better positioned for a contraction this time around, even as it gears up for faster growth if conditions remain stable.

The owner of properties in remote regions of Canada saw an already low payout ratio dip to just 63.1 percent, setting the stage for another dividend increase by the end of 2011. Vacancy rates fell, despite consistent weakness in some markets, such as Fort McMurray, Alberta. And the company continued to enjoy rising rents and the favorable impact on revenue of successful acquisitions.

If there is a worry about Northern, it’s a recent proposal for new taxes on companies that trade publicly as “staple shares”–i.e., that combine debt and equity into a single security. The REIT did this to retain tax advantages in 2011, as an investment in senior facilities didn’t meet the government’s strict definition for real estate investment trust income.

The company isn’t happy about the proposal. But even in a worst-case, it should be able to absorb taxes as a specialized investment flow-through (SIFT) entity without damage to the dividend. And even that is extremely unlikely. For one thing, the government is proposing a transition period to 2016 for adjustments to be made. And Northern is already studying “strategic alternatives” for the senior centers, having contracted a unit of Brookfield for that purpose.

Well-run Northern Property still trades above my buy target of USD28. But it would be a buy on a dip to that level; I’ll likely raise my target if and when there’s a dividend increase.

Penn West Petroleum Ltd (TSX: PWT, NYSE: PWE) shares have taken a wicked hit in recent weeks, along with shares of other energy producing Canadian companies. (See the August CE Feature Article.) The reason is oil prices’ recent fall and investor worries that we’re seeing the onslaught of another 2008.

That’s extremely unlikely. But it has left the company and its rising production profile on the bargain rack once again. The current high-teens price is roughly 60 cents or so per dollar of reserves as valued Dec. 31, 2010, when oil prices were not much different than they are now.

Despite some extreme conditions that interfered with normal production (fires and floods mainly), the company’s second-quarter funds from operations surged 11 percent from first-quarter levels and 47 percent from a year ago. That was mainly due to higher oil prices but also to the company’s success developing its extensive inventory of reserves, which focus on light oil but also contain substantial amounts of shale gas and bitumen (oil sands). The company has also maintained robust guidance for second-half 2011 output and capital spending.

Finances are stronger than they’ve been in years. The payout ratio was just 32 percent in the second quarter, and average selling prices for the quarter were actually below spot market rates. That coupled with hedging insures the company against any near-term disruptions to cash flow from volatile energy prices. Buy Penn West, which now trades very far below the highest price I’d consider it a buy.

Perpetual Energy Inc (TSX: PMT, OTC: PMGYF) increased oil and natural gas liquids to 20 percent of total output in the second quarter. That was in large part due to seasonal factors that always affect natural gas production. But it demonstrates management’s continuing commitment to diversify away from straight gas, at least as long as prices in North America remain this subdued.

As I’ve written before, this one is a rank speculation on the future of gas prices. Management has structured its operations and finances for survival. And the current level of payout ensures substantial debt reduction and liquids development, as long as natural gas prices remain above USD3 per million British thermal units (/MMBtu).

Upside is substantial if prices move above USD5/MMBtu. But again, this one is for speculators only and a buy up to USD5 only for those who don’t have positions already.