Unfortunately, fourth quarter and full-year numbers always take longer to prepare. And as of Feb. 4, only one Portfolio trust–last issue’s High Yield of the Month, Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF)–has reported. As the Portfolio section makes clear, those results were sterling. And I expect the same from other Canadian Edge recommendations, which we’ll be reporting on in Flash Alerts in the coming weeks.

Two trusts, however, have already provided such strong guidance for where they stand in 2009 that they deserve to the spotlight now: Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF) and Vermilion Energy Trust (TSX: VET-U, OTC: VETMF).

Highlighted in the December Feature article and a new Portfolio addition this month, Chemtrade’s primary business is producing, distributing and marketing specialty chemicals to industry. The trust is one of the world’s largest suppliers of sulphuric acid, liquid sulphur dioxide (SO₂) and sodium hydrosulphite (SHS), and a leading processor of spent acid, particularly in the US Gulf Coast region. It’s also a leading regional supplier of sulphur and sodium chlorate, one of only two North American producers of phosphorous pentasulphide and also produces zinc oxide at three North American locations.

As rotten fourth quarter results from several major global competitors demonstrates, the chemicals sector is traditionally considered very sensitive to economic ups and downs. Chemtrade, however, shines in two key ways.

First, it sells substantially all of its output to large, creditworthy companies such as Brazilian mining giant Vale (NYSE: RIO) under long-term contracts that remove its commodity price exposure. Second, it focuses on specialty niches where it enjoys a competitive edge.

Management divides its operations into three major business segments. The largest by far is Sulphur Products/Performance Chemicals, which provides both chemical products and the services for removing them from facilities, an increasing challenge for industrial concerns given ever-tightening environmental regulation. The trust operates nine major chemical plants in North America, five focused on making “ultra-pure” sulphuric acid. It also runs five terminals, four tolling facilities, eight “intermodal” transfer centers, 1,400 railcars and two ocean terminals.

The Pulp Chemicals division supplies sodium chlorate and crude tall oil to the pulp and paper industry. In contrast to the far-flung markets of Sulphur Products, this division has one major customer, Canfor Corp (TSX: CFP, OTC: CFPZF), which purchases 70 percent of its sodium chlorate under a 10-year contract and pays a fee for sending all its soap skimmings for processing.

Finally, the International division basically markets and distributes Chemtrade’s sulphur products to end-user customers in Europe, North Africa, Central and South America and the Pacific Rim. End-user customers are principally in the refining, mining, chemical and fertilizer industries and include Bayer (OTC: BAYZF), Degussa and BASF (OTC: BASFY).

Individually, all of these businesses are potentially affected by economic ups and downs. Collectively, however, the operating, geographic and customer diversification gives management a great deal of flexibility navigating these challenges. Some 80 percent of revenue is generated through “risk sharing” contracts and facilities are located next to major customers, largely negating potential competition.

In its six years of existence, Chemtrade has successively expanded its business line and markets with acquisitions, followed by intensive efforts to increase efficiency and reduce commodity price exposure. As a result, it’s realized 21 percent compound annual growth (CAGR) in revenue since 2002, as well as 26.9 percent growth in cash flow and 16.7 percent growth in distributable cash flow.

That torrid growth continued into the third quarter of 2008, as the trust more than doubled earnings and distributable cash flow on a near tripling of revenue. Acquisitions, rising acid prices and efficiencies all played a role, as the trust overcame the cost of an outage at its Beaumont plant–now repaired and back in operation.

In his statement of guidance for 2009, CEO Mark Davis acknowledged “great economic upheaval” is affecting Chemtrade’s customers and suppliers. Yet he states the trust’s “business model and the initiatives implemented over recent years will enable” the trust to “generate distributable cash after maintenance capital expenditures well in excess of the distribution rate of CD1.20 per unit.”

As for the balance sheet, Chemtrade has no debt coming due until 2011 and has systematically deployed cash to reduce borrowings and buy back trust units. More than 90 percent of third quarter revenue was generated outside Canada and management has stated several times since Halloween 2006 that it expects little impact from 2011 taxations on its distribution.

The biggest risk for Chemtrade is toughening business conditions for its customers, which could cause some to walk away from their contracts. Given the essential nature of its chemicals, strong competitive positions, focus on bigger players and customer diversification, however, it would take a lot to knock this trust into serious difficulty. And the third quarter payout ratio of just 33 percent leaves a lot of room for error as well.

The best news is, despite these great strengths, Chemtrade is priced like the typical doggy chemicals outfit it doesn’t resemble in the least, at just 31 percent of sales, 1.4 times book value and a yield of over 13 percent. Buy Chemtrade Logistics Income Fund up to 13.

Like Chemtrade, Vermilion Energy Trust derives the lion’s share of its earning power from outside Canada, mostly from properties in Western Europe and Australia. The trust also has a 42.4 percent stake in exploration and development company Verenex (TSX: VNX, OTC: VRNXF), which holds an estimated 2.2 billion barrels of contingent and prospective resources in Libya.

Like all oil and gas producer trusts, Vermilion has taken a hit from the precipitous drop in energy prices. Realized selling prices of over CAD100 per barrel for oil and CAD9 per million British thermal units for natural gas came down sharply in the fourth quarter, which will take a toll on earnings slated to be announced Mar. 2. But that impact will be less than on other trusts: Vermilion sells into Europe (43 percent of output) and Australia (21 percent), where natural gas prices at least have been higher than in North America.

Very low debt is another major advantage. When energy prices were at much higher levels, Vermilion maintained a very low payout ratio, with summer cash flow covering both capital spending and the distribution by nearly 2-to-1. That’s enabled the trust to slash net debt to the lowest level in the industry, at just 0.4 times annual cash flow through the third quarter.

And management hasn’t skimped on development either, as reserve life is now more than 10 years. The three-year recycle ratio–a key measure of how trusts are maximizing use of reserves, stands at $2.25 in cash flow generated per $1 invested. Production per unit has grown more than 7 percent a year over that time, versus a 7 percent decline for Canadian majors.

Reserves have grown at a 4.6 percent annual rate, versus 0.7 percent for Canadian independents, most of which hoard their cash rather than pay it out to investors. Of course, Vermilion’s executives are well motivated to keep rewarding unitholders with generous distributions, as they own 9 percent of the company.

Utilizing a baseline price of USD50 per barrel oil and CAD7 per thousand cubic feet for natural gas, Vermilion calculates its current distribution rate will be less than half its total distributable cash flow in 2009. And management expects cash flow to cover capital spending as well this year, a major reason why it’s the only energy producing trust not to trim planned capital outlays in response to falling energy prices.

Net debt to cash flow, meanwhile, is expected to rise to just 0.6, again by far the lowest in the industry. The trust used additional cash flow from high energy price to pay off nearly half its net debt in 2008 and has the power to pay it all off and then some, should it elect to sell its stake in Verenex, as some expect.

To be sure, not even Vermilion is completely immune from a recession. Another big drop in energy prices, for example, would force the trust to either borrow, throttle back capital spending or cut its distribution, and 75 percent of the revenue stream is priced to oil.

Importantly, however, the drop we’ve seen so far–the biggest in history–hasn’t yet knocked Vermilion off its mark. And if energy prices are at least near a bottom, the trust won’t be. Instead, like the super oils, it will continue to use the drop we’ve seen already to cement dominance and build future profitability.

It all adds up to the best conservative oil and gas trust bet around. And now trading at barely half last year’s high, Vermilion is also the cheapest it’s been in years. Buy Vermilion Energy Trust if you haven’t yet all the way up to USD30.

For more information on Chemtrade and Vermilion, visit How They Rate. Click on the “.UN” symbol to go to Advice for Investors, 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 over-the-counter (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 under 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. Both, however, have made statements that they expect distributions to be little affected by the new tax. For one thing, both have considerable operations outside Canada where income is already taxed, and is therefore not subject to the trust tax.

Chemtrade management states it does not intend to reduce its distribution in 2011. Vermilion’s plan calls to convert to a corporation while at least maintaining its current dividend and growing output and reserves by 5 to 7 percent a year. That’s contingent on energy prices cooperating, but it’s about as 2011-proof as it gets in the volatile energy production sector.