Canada’s economy will contract in the first half and rebound strongly in the second for an overall growth rate of nil: That’s the current consensus projection for the country in 2009.

Even should that view prove optimistic, however, the country’s top-quality essential service businesses will continue to thrive, thanks to steady demand and modest credit needs. And that’s very good news indeed for High Yields of the Month AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF) and Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF).

AltaGas’ focus is on building its portfolio of power and natural gas infrastructure assets. The business mix is basically in four categories: Extraction and Transmission (E&T); Field Gathering and Processing (FGP); Energy Services (ES); and Power Generation (PG), with a focus on renewable energy resources. Since inception in 1994, the trust has steadily grown all of these businesses, with the result that today’s revenue mix is as balanced as it is rapidly growing.

E&T assets basically include a portfolio of high-volume pipeline transmission systems that transport natural gas to major markets. The six transmission pipelines are long-life assets that earn money from fees paid by major energy producers, so revenues aren’t affected by energy prices. The extraction assets are also fee-based and basically ready the gas for shipping. AltaGas currently has interests in six of Canada’s 10 such facilities.

FGP assets process raw natural gas to remove impurities, as well as extract higher-value-added natural gas liquids for sale. As with E&T, the assets earn their keep with throughput and capacity-based fees. Again, revenue isn’t tied to energy prices. The trust’s 4,000 plus miles of associated gathering lines are connected to more than 70 field gathering and processing facilities, and 80 percent of them can actually be moved to accommodate customer needs.

The company’s power generation assets are focused on fast-growing, energy-hungry Alberta, with a 5 percent market share in the region. AltaGas is expanding that percentage with a growing portfolio of renewable energy plants. The emphasis is on hydroelectric and wind, which have the advantages of being largely immune from volatile energy prices and not producing carbon dioxide, a growing issue particularly for the oil sands region.

Finally, energy management operations tie the company together by effectively leveraging E&T, FGP and PG assets. These include providing services to end-use customers to improve efficiency, buying and reselling energy, and marketing natural gas for producers. The segment’s more than 1,200 contracts across Canada boast a percentage renewal rate in the mid-90 percent range. They’re also organized as limited partnerships, limiting the parent company’s potential financial and legal exposure and maximizing cash flow.

AltaGas’ success consistently shows up in its robust earnings. Third quarter profits rose to CAD0.75 a unit, up 38.9 percent from year earlier levels, and CEO David Cornhill projected more of the same for the fourth quarter and beyond. Credit raters Standard & Poor’s and Dominion Bond Rating Service concur with his optimism, bumping up their outlook on the trust’s credit rating to “positive” from “stable” in November. So do Bay Street and the company’s insiders, who’ve made 13 major buys for 61,907 total shares over the past three months without a single sale.

It’s not hard to see why. Looking ahead, 74 percent of AltaGas’ revenue from the power sector is either hedged or locked into long-term contracts. Meanwhile, only 6 percent of natural gas sales are unhedged. Higher power earnings are locked in due to a base of hedges at higher prices. Meanwhile, gas earnings growth is assured due to an expanding base of fee-generating assets. And there’s a full pipeline of projects for coming years as well, both in gas and power.

Debt is only 37.5 percent of capital, and the trust has nearly half its credit lines still available (CAD350 million) to make further acquisitions. And the company generates CAD65 to CAD70 million a year in free cash flow after dividends and capital expenditures as well.

Despite these great strengths, AltaGas shares were nonetheless caught up in the great stock market selloff and finished the year deep in the red. Look for that to reverse with a vengeance off the current market value of just 66 percent of annual sales. And the current yield of more than 12 percent should enjoy another boost as well. AltaGas Income Trust is a buy up to USD25.

Bell Aliant saw a major black cloud overhanging its stock blow away literally overnight with the collapse of the leveraged buyout of parent BCE (TSX: BCE, NYSE: BCE). The takeover of Canada’s premier telecom giant would likely have led to the parent’s sale of its 44.1 percent stake in the trust to reduce a potentially crushing post-buyout debt load. With BCE remaining independent, it’s under no pressure to unload its stake to raise cash.

In fact, BCE management may elect to buy up the trust shares it doesn’t already own to maximize its cash flow from them. A transaction at book value alone would require a price of CAD33, some 35 percent above Bell’s current price.

As for Bell, it’s perfectly solid continuing as an independent entity. Nearly half of the trust’s rural phone service territory is still not touched by competition. And sales from upgrades to broadband and other advanced services continue to outpace losses of traditional copper-line connections.

The company today serves customers in six eastern Canadian provinces, with a major focus on Atlantic Canada. Services include voice, data, Internet, video and value-added business solutions. Information technology services are provided through the company’s xwave offices, and extend into the US and well as Canada.

Partnerships with former parent Aliant–which provided the other half of the trust’s assets when it was created in spring 2006–and major owner BCE ensure the trust access to the country’s best technology, a major plus for retaining its edge.

One recent joint initiative is a long-term agreement with the Bell Canada unit of BCE to provide an enhanced transport network connecting the latter’s cellular sites in Atlantic Canada and regions of Ontario and Quebec. This deal will add advanced technology to the existing network, and support BCE’s nationwide migration to Long-Term Evolution (LTE) technology, the fourth generation global wireless standard.

Bell’s wireless exposure is limited to a handful of investments, rather than a company-wide operation. But some 70 percent of its fixed-line network is now capable of delivering telephony service via high-speed lines, as well as video entertainment.

Moreover, the trust continues to make network improvements, including an accelerated plan for fiber-to-the-node (FTTN) deployment. That’s enabling it to provide advanced services with increased bandwidth on its existing copper infrastructure at a controllable cost.

Ultimately, Bell Aliant is a cash flow story, as are US rural telecoms. Third quarter earnings illustrate the trust’s underlying steadiness, as have results of every prior period since inception. Continuing a trend, Bell Aliant’s long distance revenue fell 6.2 percent, local phone revenue slipped 1.4 percent and network access sales were off 3.4 percent. The dip in local phone service would actually have been greater, absent a one-time benefit.

Internet revenue, however, surged 13.6 percent on a 12.4 percent boost in customers and a 6.9 percent increase in revenue per customer. Meanwhile, information technology revenue surged 29.5 percent.

The result was flat revenue growth overall. Profit margins remained steady, resulting in a slight uptick in cash flow. And coupled with the wind-down of capital expenditures due to the completion of a major upgrade project, all-important distributable cash flow moved higher by a percentage point, despite hefty capital expenditures on network improvements.

Looking ahead, Bell Aliant will continue to be challenged by the growth of competition from wireless and cable television rivals, just as incumbent telecoms are across the continent. Its long-term health will depend on finding new systems to absorb and upselling users to advanced services, while holding onto current customers with new technology, better service and competitive rates.

Thus far in the North American bear market/recession, the trust has been able to do that with ease. Newly anointed CEO Karen Sheriff’s experience in product management and development, marketing and small/medium business operations at parent BCE and other telecoms should be invaluable keeping Bell’s edge in the coming months.

DBRS awards Bell Aliant a super STA-2 (high) rating, citing “consistently solid” cash flow from operations supporting a payout ratio of 90 percent of distributable cash flow. That’s well above the current payout of a little over 50 percent in the third quarter and 87 percent for the first three months of 2008.

The trust calculates its payout net of capital expenditures, meaning it continues to build its cash hoard for further expansion. To that end, it’s been able to pull off several acquisitions of smaller systems over the past couple years and is certain to do more. DBRS also notes local phone line losses appear to have “stabilized,” even in the 55 percent of Bell Aliant’s markets that currently face competition.

Bell Aliant shares were caught up in the fall selling wave and finished the year at a loss. They’ve perked up a bit over the past couple of weeks but continue to yield nearly 12 percent, a rate management has consistently increased. As a result, they offer considerable upside from a share price recovery as well as safe, lofty income. Bell Aliant Regional Communications Income Fund is a buy up to USD25 for investors of all stripes who don’t own it already.

For more information on AltaGas and Bell Aliant, visit the How They Rate Table. Click on the “.UN” symbol to go to the Web site of our Canadian partner MPL Communications for press releases, charts and other data.

These are substantial companies, so any broker should be able to buy them, either with their Toronto or OTC symbols. Ask which way is cheapest. Click on the trusts’ names to go directly to their Web sites.

Note that both trusts’ dividends are considered qualified for tax purposes in the US. Tax information to use as backup for filing them as qualified–whether or not there are errors on your 1099–is listed in the Income Trust Tax Guide.

As is customary for virtually all foreign-based companies, the host government–in this case Canada–withholds 15 percent of distributions paid to US investors at the border. This tax can be recovered by filing a Form 1116 with your US income taxes. The amount of recovery allowed per year depends on your own tax situation, though unrecovered amounts can be carried forward to future years.

Both trusts will be subject to trust taxation beginning in 2011. As of now, neither has made a definitive move on this issue, though both have stated they expect to convert to corporations. Both, however, have stated they’ll be able to mitigate much of the prospective burden and continue to pay big dividends long after the new tax kicks in, whether they reorganize as corporations or remain trusts.