This month, two more Canadian income trusts joined the 37 trusts increasing distributions since Halloween 2006. That’s a sure sign they’re still thriving during the current trial by fire and that they intend to keep paying outsized yields well past 2011.

In the Conservative Portfolio, Macquarie Power & Infrastructure (MPT.UN, MCQPF) boosted its payout a modest 2 percent to an annual rate of CAD1.05 per share. The increase was a pleasant surprise to me because it came in the aftermath of a rather high third quarter payout ratio for the trust.

The boost is a clear sign the trust’s portfolio continues to run well. Moreover, it comes at the same time the trust prepaid a USD22 million loan, cutting debt and eliminating its remaining foreign exchange exposure.

Both are a plus for cash flow going forward and point to more increases in the already generous dividend of nearly 12 percent. Macquarie Power & Infrastructure is squarely on the bargain counter and a solid buy up to USD12.

In the Aggressive Portfolio, Vermilion Energy Trust (VET.UN, VETMF) became the first conventional oil and gas producer trust to boost its dividend since Halloween 2006. The 12-percent increase is the first in the trust’s history and reflects steady production gains on four continents and conservative financial policies that have consistently kept debt low and the payout ratio at less than 50 percent.

The move also signals something else about Vermilion: Management plans to keep it as a dividend-paying entity well after 2011, and its well-run operations and trust tax-exempt overseas income ensure its ability to do that. Moreover, the trust has clearly been able to protect itself against falling natural gas prices in North America and to insulate itself against the possibility of falling oil prices in early 2008.

All these are excellent reasons to buy Vermilion Energy Trust up to USD40. In fact, alone of the oil and gas producer trusts, it’s actually worthy of a switch to the Conservative Portfolio.

The Cut

The other dividend action in the Canadian Edge portfolios was a reduction by Advantage Energy Income Fund (AVN.UN, NYSE: AAV). The cut from a monthly rate of 18 cents Canadian to 15 cents Canadian a share wasn’t wholly unexpected, given the trust’s heavy exposure to natural gas production. It was also fairly well priced in by the market, though there’s been some residual selling.

As I’ve said, dividend cuts come with the territory when you buy and hold oil and gas producers or energy service trusts. And I’m willing to hold onto a producer/services trust that cuts its dividend, provided there are numbers verifying the underlying business is still solid.

I’ve been dead wrong on natural gas prices for more than a year now. Advantage is less vulnerable than other Aggressive Portfolio holdings, such as Paramount Energy Trust (PMT.UN, PMGYF). But it’s still going to be challenged as long as gas prices stay weak.

My view is that gas prices will recover in 2008, either on a return to normal weather or as US utilities start to fire up massive natural gas-fired power plants. The rush to use gas for power plants should really accelerate as future carbon-dioxide regulation comes into focus. (Gas emits less than half the carbon of chief rival coal.)

That will take time, however, and we want to be sure Advantage will be around to benefit. The good news is the cuts are part of a plan that appears to ensure the trust will continue to operate profitably while gas prices remain low.

The recently acquired Sound Energy properties are now integrated, and capital spending is far more balanced between natural gas (55 percent) and light oil (45 percent) than in memory. That should bring current production of 62 percent gas into better balance as well.

With the cut, Advantage’s payout ratio will decline to a more sustainable 70 to 75 percent. That will also aid debt servicing, which is more under control than it’s been for a while.

As I’ve pointed out, investors seem to have forgotten that just a couple months ago Abu Dhabi’s national energy company TAQA offered 40 percent over market value in cash to take over PrimeWest Energy Trust (PWI.UN, NYSE: PWI). And TAQA didn’t walk away from its offer, despite the recent market slide and some initial political opposition in Canada.

After sliding in the wake of the distribution cut, Advantage now trades well under book value, making it a prime target for a similar deal. My guess is we won’t have to wait long for the sharks to start circling. Advantage Energy Income Fund is a buy up to USD14 for those who don’t already own it.

Remember, my advice is to never try to double down on a falling stock. You may catch a bottom, but with double the money at stake, there’s too much potential to get emotional. If you already own Advantage, there are plenty of other battered gas plays to bet on. That way, you’ll diversify your risk and get the same bang for your buck.