In my view, however, we’re far better off looking for 2009 guidance in the hard numbers from the recently passed fourth quarter. Thus far, one Portfolio pick has reported, Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF). Its results are hardly enough to discern a trend. But, like the January CE Portfolio performance, they were certainly promising.

As in prior quarters, the leading provider of communications to east Canada’s rural areas lost revenue at its traditional local and long-distance telephone business. As in the US, Canada is rapidly transitioning from the copper wire-based network that has served since the days of Alexander Graham Bell into a hybrid system of high-speed wireline broadband and wireless communications. And the company no longer enjoys a monopoly.

The result is steady erosion in the business that was once the backbone of its operations and still contributes the lion’s share of revenue. Management’s challenge has been to offset the impact on cash flow, first by upgrading its network to be the dominant provider of broadband in its territory, and second by streamlining and controlling debt.

January’s High Yield of the Month, Bell Aliant has had little trouble doing this in prior quarters. Riding strong growth in Internet and digital television customers, the trust has routinely posted growing revenues despite losing customers for traditional local and long distance. That’s led to steady growth in distributable cash flow and a moderate payout ratio, which the trust calculates after taking out capital expenditures (CAPEX).

Until Bell Aliant announced earnings this week, the big question was whether the deepening recession in Canada would slow broadband growth and accelerate the erosion of its traditional business enough to cripple cash flow and threaten the dividend. Happily, the answer is a resounding “no.”

Internet revenue continued its robust growth of recent quarters, rising 13 percent from year earlier levels on a 10.7 percent increase in subscribers and a 6.7 percent jump in average revenue per residential customer. Other data revenue rose 4.4 percent. As for the traditional business, local phone revenue did decline 1.2 percent and long distance sales fell 5.7 percent. But the pace of “network access service” losses–a measure of local phone line losses due to wireless substitution or competition–actually declined by 7.5 percent.

The overall result: robust fourth quarter cash flows that again covered the trust’s distribution and CAPEX comfortably. And that was despite a 16.6 percent jump in CAPEX as the trust accelerated its network upgrades.

Before North American telecom companies began releasing fourth quarter earnings last month, the consensus view was most would see substantial declines in profits. The theory, most vocally promulgated in the financial press by Bernstein Research analyst Craig Moffett, is that communications is no longer recession-resistant but cyclical. And the fourth quarter was supposed to be the first during which traditional business losses would accelerate and wireless/broadband growth decelerate enough to derail companies’ growth.

Clearly, those dire forecasts proved well off the mark for Bell Aliant in the fourth quarter, just as they have every reporting period since this bear market began in mid-2007. In fact, they’ve proven spectacularly wrong across the board for company after company.

The bears have since shifted their argument to 2009, alleging the recession will worsen and consumers will eventually begin to cut back on communications services. I certainly wouldn’t rule out anything, particularly with the macro situation so unsettled. That’s why we look at the numbers every quarter to ensure our companies are still on track.

In Bell Aliant’s case, however, not only were fourth quarter numbers solid, but management has issued stronger guidance for 2009 results. Even factoring in a more pessimistic forecast for the Canadian economy than the Bank of Canada, the trust projects a more than 10 percent boost in distributable cash flow.

Much of that is based on a forecast for steady sales as we’ve seen in prior quarters. But CEO Karen Sheriff has also announced the reduction of 500 management positions, or 5 percent of the overall workforce. And she plans to ramp up spending on broadband and other advanced services by 20 percent, further enhancing Bell Aliant’s ability to upsell.

Again, I continue to let the business numbers be my guide for whether to hold or fold positions. And I’ll be taking another hard look when this trust releases its first quarter 2009 numbers in late April/early May. But Bell Aliant continues to hold its own through all manner of stress tests. And that certainly makes it a worthy holding yielding over 12 percent and selling for just 73 percent of book value. Buy Bell Aliant Regional Communications Income Fund up to USD25 if you haven’t already.

Other Clues

Bell Aliant is just one of the 18 Conservative Holdings. But it’s typical of all of them in one respect: Namely, its underlying business is historically counter-cyclical. Sales generally don’t skyrocket in good times. But neither do they fall off a cliff during a recession, such as the one we’re in.

The bad news is we’re going to have to wait a few more weeks to get the hard fourth quarter numbers for many of these trusts. In fact, Atlantic Power Corp (TSX: ATP-U, OTC: ATPWF) won’t be posting its full results until the first quarter is pretty much over, due to the filing requirements of its myriad power plant and power line investments. And as the listing below indicates, it’s hardly alone among Canadian Edge recommendations in stretching out this key earnings season:

Conservative Holdings

• AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF) Feb. 27, 2009 (Estimated)
• Artis REIT (TSX: AX-U, OTC: ARESF) Feb. 13, 2009 (Estimated)
• Atlantic Power Corp (TSX: ATP-U, OTC: ATPWF) March 30, 2009 (Confirmed)
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF) Feb. 13, 2009 (Estimated)
• Canadian Apartment REIT (TSX: CAR-U, OTC: CDPYF) Feb. 26, 2009 (Confirmed)
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF) Feb. 13, 2009 (Estimated)
• Consumers’ Waterheater (TSX: CWI-U, OTC: CSUWF) Feb. 20, 2009 (Estimated)
• Energy Savings Income Fund (TSX: SIF-U, OTC: ESIUF) Feb. 6, 2009 (Estimated)
• Great Lakes Hydro Income Fund (TSX: GLH-U, OTC: GLHIF) Feb. 5, 2009 (Confirmed)
• Innergex Power Income Fund (TSX: IEF-U, OTC: INRGF) Mar. 11, 2009 (Estimated)
• Keyera Facilities (TSX: KEY-U, OTC: KEYUF) Feb. 24, 2009 (Confirmed)
• Macquarie Power & Infrastructure (TSX: MPT-U, OTC: MCQPF) Feb. 19, 2009 (Confirmed)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF) Mar. 11, 2009 (Estimated)
• Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF) Mar. 6, 2009 (Estimated)
• RioCan REIT (TSX: REI-U, OTC: RIOCF) Feb. 13, 2009 (Confirmed)
• TransForce (TSX: TFI, OTC: TFIFF) Mar. 12, 2009 (Confirmed)
• Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF) Feb. 13, 2009 (Estimated)

Aggressive Holdings

• Advantage Energy Income Fund (TSX: AVN-U, NYSE: AAV) Mar. 6, 2009 (Estimated)
• Ag Growth Income Fund (TSX: AFN-U, OTC: AGGRF) Feb. 13, 2009 (Estimated)
• ARC Energy Trust (TSX: AET-U, OTC: AETUF) Feb. 12, 2009 (Confirmed)
• Boralex Power Income Fund (TSX: BPT-U, OTC: BLXJF) Feb. 20, 2009 (Confirmed)
• Daylight Resources Trust (TSX: DAY-U, OTC: DAYYF) Mar. 5, 2009 (Estimated)
• Enerplus Resources (TSX: ERF-U, NYSE: ERF) Feb. 27, 2009 (Estimated)
• GMP Capital Trust (TSX: GMP-U, OTC: GMCPF) Feb. 27, 2009 (Estimated)
• Newalta Income Fund (TSX: NAL-U, OTC: NALUF) Mar. 6, 2009 (Estimated)
• Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF) Mar. 11, 2009 (Estimated)
• Penn West Energy Trust (TSX: PWT-U, NYSE: PWE) Feb. 18, 2009 (Confirmed)
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF) Mar. 5, 2009 (Estimated)
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX) Feb. 13, 2009 (Estimated)
• Trinidad Drilling (TSX: TDG, OTC: TDGCF) Mar. 11, 2009 (Estimated)
• Vermilion Energy Trust (TSX: VET-U, OTC: VETMF) Mar. 2, 2009 (Confirmed)

As our picks announce results in the coming weeks, we’ll be reviewing them in the weekly Maple Leaf Memo and contextualizing them further in Flash Alerts. Until then, however, the only guidance we have to go on is management statements, as well as dividend paying history.

Happily, as I pointed out in a Jan. 23 Flash Alert, Warnings Season, what clues we have seen are pretty positive for Conservative Holdings. And that’s been true of the news announced since as well.

Energy infrastructure owner and operator AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF) was able to raise roughly CAD100 million in equity financing to further reduce debt, as well as strengthen its balance sheet to secure a more favorable credit agreement. The market’s initial reaction to the issue of additional units was predictably negative. But it’s bullish both for weathering the continued hard times and future growth. Insiders have continued to buy and Bay Street is positive as ever.

The upshot is the 2009 outlook for the other January High Yield of the Month is solid as ever. Buy AltaGas Income Trust and lock away its 13 percent-plus yield all the way up to USD25.

Similarly, Great Lakes Hydro Income Fund (TSX: GLH-U, OTC: GLHIF) had little problem in early January closing on the sale of 4.69 million units to complete the purchases of wind and hydro assets from a unit of parent Brookfield Asset Management (NYSE: BAM). Again, the market’s reaction to the share issue was a day of knee-jerk selling, but the power trust’s shares quickly stabilized.

Great Lakes Hydro Income Fund remains a solid value up to USD18. Note that management maintains it won’t cut distributions in 2011 when trust taxation kicks in.

Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF) shares continue to be slapped around by investor worries about the economy. That’s largely because of the complete meltdown of US directory companies Idearc (OTC: IDAR) and RH Donnelly (OTC: RHDC) in recent months, and fears Yellow will follow the same downward trajectory.

I’ve said it before and I’ll say it again: There’s been absolutely no weakness in Yellow’s numbers to date. Moreover, the anecdotal evidence since the third quarter remains very positive. Last month, for example, the trust’s Trader Corp unit further cemented its dominance of Canadian on-line vehicle marketing by inking a long-term, exclusive commercial deal with Dealer.com, along with a 20 percent equity interest. That’s hardly the action of a company in the midst of a meltdown.

If you already own Yellow, there’s no reason to buy more at this time. That’s my standing advice for all of our holdings. There are just too many ongoing stress tests that can unexpectedly trip up a business for anyone to overload on any one stock. But those who haven’t yet bought Yellow can certainly take a stake up to USD10.

If the numbers do continue to hold up until this recession ends–as they have thus far–we’re looking at probably a triple in this one, in addition to a yield of nearly 20 percent. And management has pledged to hold the payout at least at this level long past 2011.

One sector that will be of particular interest to me in the upcoming earnings announcements is Canadian real estate investment trusts (REIT). I currently hold four in the Conservative Portfolio: Artis REIT (TSX: AX-U, OTC: ARESF), Canadian Apartment REIT (TSX: CAR-U, OTC: CDPYF), Northern Property REIT (TSX: NPR-U, OTC: NPRUF) and RioCan REIT (TSX: REI-U, OTC: RIOCF).

Like their counterparts in the US, Canadian REITs have come under selling pressure recently. In fact, my favored quartet has been the worst-performing sector among the Conservative holdings since the start of 2009.

Canada’s property market is softening in the face of the most challenging North American economic conditions in decades. And there have been several meltdowns of weaker Canadian REITs over the past few months. But even if the country’s economy weakens more than expected this year, these four are positioned to hold their own by virtue of owning high-quality properties, focusing on creditworthy tenants and maintaining very strong balance sheets. In fact, they’re in prime position to take advantage of others’ weakness by scooping up prime properties on the cheap.

That’s what retail property developer and owner RioCan did again in late January, acquiring six retail properties in the greater Montreal area from ING Real Estate for CAD67.5 million. The portfolio consists of grocery store-anchored shopping centers with a total occupancy of 99.04 percent, an average age of just 14.5 years and an average lease on the grocery stores of 7.9 years. Rental income is further insured by the fact that roughly 83 percent of the portfolio is leased to major names.

In short, the acquisition meshes perfectly with RioCan’s focus on the highest-quality properties. That’s the same strategy that’s enabled it to keep growing in the weakest markets. And the purchase price of well below replacement cost ensures the move will boost growth as well.

A weakening economy means even the strongest retailers are putting expansion plans on hold. Last month, however, The Home Depot Canada agreed to pay RioCan to terminate its lease for a proposed store at a new development project. That not only ensures the REIT will be made whole from that deal, but it also demonstrates the high quality of its client base and the premium its customers place on good relations with Canada’s leading retail developer REIT.

Again, though RioCan management remains quite bullish on its prospects, we won’t know for certain how the REIT is faring until fourth quarter results are announced on Feb. 13. But at this point, RioCan REIT is very cheap up to USD18.

Energy: Survival Mode

If the Conservative Holdings appear to be weathering the crisis for their non-cyclicality, most CE Aggressive Holdings are suffering for precisely the opposite reason: exposure to the weakening economy.

There are a handful of exceptions. One is new addition Chemtrade Logistics Income Fund (TSX: CHE-U, CGIFF), which is highlighted in High Yield of the Month. The trust’s sulphuric acid business in particular appears to be weathering the economic storms well for its diversification and superior competitive advantage. Yielding more than 13 percent, Chemtrade Logistics Income Fund is a buy up to USD13.

Ag Growth Income Fund’s (TSX: AFN-U, OTC: AGGRF) special distribution of CAD0.24 (paid Jan. 30) was a positive development. And despite the downturn in corn prices, management has remained upbeat about its equipment business, in part because ethanol mandates have kept up demand. We’ll know for sure how the fund is doing Feb. 13 when it announces fourth quarter earnings. But I’m cautiously optimistic and still a buyer of Ag Growth Income Fund up to USD25.

Newly converted energy services corporations Newalta Corp (TSX: NAL, OTC: NWLTF) and Trinidad Drilling (TSX: TDG, OTC: TDGCF) should also have no problems maintaining their distributions, at least through the first half of 2009.

Unlike most owners of drilling rigs, Trinidad leases almost exclusively with long-term contracts to only the strongest entities, and its fleet is state-of-the-art. As a result, it’s unlikely to feel the bite of the ongoing slowdown in North American drilling.

Newalta still intends to follow with a planned CAD125 million in capital spending in 2009. The company, however, has turned its attention for the first half of the year to cost cutting and reducing debt, both of which further ensure the safety of the now-reduced distribution of CAD0.20 per share per quarter, a yield of more than 15 percent at current prices.

This one has been a huge disappointment as a stock. As a company, however, Canada’s largest industrial waste manager and environmental services provider has continued to perform, growing its dominance and reach. My belief is sooner or later that will show up in the share price. And as long as the numbers demonstrate the underlying business is succeeding, I’ll keep holding onto Newalta Corp.

Unfortunately, our energy producer trusts by their nature simply can’t dodge the fallout of a USD100-plus decline in the price of a barrel of oil, or a two-thirds drop in natural gas prices.

Vermilion Energy Trust (TSX: VET-U, OTC: VETMF), the other February High Yield of the Month, has, amazingly, been able to avoid a hit to its distribution by a combination of diversified markets and production (Europe, Australia, Canada), growing output, extremely low debt and an historically conservative financial and payout policy. Management still expects to cover its current distribution rate and planned capital spending entirely with cash flow in 2009, without any adjustment to either.

Even Vermilion, however, may be eventually forced to reduce capital spending or its distribution this year, should energy prices plummet further. That’s also true of the only other Portfolio energy producer trust to hold its distribution steady thus far, Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF), which has done so in large part with ultra-conservative financial management and very low operating costs.

Both of these trusts, of course, will be in great shape if energy prices have hit bottom. And in the meantime, they’re about the safest way to play a comeback in energy trusts. Now yielding nearly 18 percent, Peyto is pricing in a distribution cut and is a buy up to USD15.

Vermilion is not pricing in a cut, but that’s more than justified by its strong guidance. Buy Vermilion Energy Trust up to USD30.

Unfortunately, the other seven energy producing trusts in the Aggressive holdings have all had to reduce distributions at least once during this down cycle. The reason is simply money.

None of our trusts are in any danger of going belly-up. All of them are capable of producing energy economically, even if oil and gas prices take another nosedive. Several, such as Enerplus Resources (TSX: ERF-U, NYSE: ERF), have actually seen and weathered a lot worse.

The primary reason is their relentless focus on sustainability. Every decision is framed by how it affects the long-term health of the trust’s underlying business. That was clearly in evidence by decisions to go easy with distribution increases last summer with oil pushing USD150 and gas in the low teens. And it most certainly is now, as management reduces outlays to investors in order maintain capital spending plans and minimize the need to borrow or issue shares at today’s very low prices.

Dividend cuts don’t come easy to these trusts. Not only is management concerned about perceived value in the marketplace, but, in the words of Peyto CEO Darren Gee, he’s “got skin in the game” in form of a great deal of ordinary shares. So do the trust’s other executives and the “insider trading” is displayed prominently on Peyto’s Web site.

In the case of each of our trusts, however, reductions have made sense. What’s important to realize is they’re by no means permanent. Just as dividend cuts have been made necessary by falling energy prices, so will payouts be restored when the economy bottoms and global energy demand returns to normal levels, putting pressure on now rapidly falling supplies and therefore upward pressure on prices.

Meanwhile, cutting now ensures not only survival in the face of the worst energy price decline in decades, tight credit conditions and lingering economic uncertainty. But it also keeps trusts in solid financial shape to take advantage of opportunities arising with competitors flat on their backs when foundations can be laid for future profitability. Simply, today’s pain is almost surely going to be tomorrow’s gain.

Reviewing last month’s action, ARC Energy Trust’s (TSX: AET-U, OTC: AETUF) dividend cut to a monthly rate of just CAD0.12–starting with the Feb. 16 payment–is its fourth reduction since September. But the saved cash will be invaluable for financing a planned CAD200 million in first half 2009 capital expenditures, much on the development of its Montney tight gas play and expanding Dawson processing capacity. The trust is also selling shares in an offering worth CAD253 million, which will further hold down debt.

Daylight Energy Trust (TSX: DAY-U, OTC: DAYYF) cut its monthly payment to CAD0.08 from CAD0.13, also effective with the February disbursement. As with ARC, the move was made to maintain spending plans without adding to debt and is calibrated to an oil price of USD50 a barrel and CAD7 per thousand cubic feet for gas. Those numbers are slightly above current prices. But they include hedging, and 43 percent of 2009 output is already locked in at a minimum of USD110 per barrel for oil and CAD8 for gas.

Enerplus’ cut last month takes its payout down to just CAD0.18 and is the third reduction from the October rate of CAD0.47. Management’s stated aim is to “preserve our balance sheet advantage and continue to keep us in a position to improve our asset base through acquisitions” and to “minimize increases in our debt levels outside of any acquisition activities within the context of current spot prices.”

That effectively pegs Enerplus’ budget forecast to oil prices of just USD40 to USD45 a barrel and gas to only CAD5 to CAD5.50 per thousand cubic feet, leaving an awful lot of room for upside. But then again this is the trust that managed to build its prosperity in the late 1990s, even when oil cracked under USD10 and natural gas fell to just CAD1.

Paramount Energy Trust’s (TSX: PMT-U, OTC: PMGYF) total reliance on natural gas production, high debt leverage and unconventional development strategy have long made it the most aggressive of my oil and gas trust recommendations. Up until last month, the trust’s ultra-conservative hedging and financial strategy–designed to reduce debt substantially over the next few years while developing properties acquired from Dominion Resources in 2007–had allowed it to maintain its CAD0.10 per unit per month distribution. Unfortunately, with gas plunging to USD4.50 last month, the strain on cash flow became too great, and management elected to cut the payout to CAD0.07.

Investors shouldn’t consider this a failure on Paramount’s part. Rather, it’s a continued rational response to the catastrophic drop in energy prices that ensures survival in the near term while keeping the trust in the game for ultimate recovery. The trust continues to hedge output aggressively, and the payout ratio after the cut is expected to come in around 50 percent for 2009 at current spot prices. CAPEX has also been reduced, but not enough to significantly threaten production.

Finally, Penn West Energy Trust (TSX: PWT-U, NYSE: PWE) has at last cut its payout to a monthly rate of CAD0.23 from the prior level of CAD0.34. With the trust’s yield near 30 percent in recent months, the action was clearly priced in. Management, however, combined it with the announcement that it would issue CAD250 million in trust units, which seemed to set some investors off.

Not to enter a battle with the blogosphere, but in my view, both actions make sense for the trust’s long-run health given the current environment. And they were well priced in, well in advance. This is a large company with a lot of moving parts that’s arguably still absorbing a series of mega-mergers in recent years. But the new distribution level is protected by roughly 50-percent hedged position for 2009, as well as now much more conservative price forecasts.

Anyone who owns or is thinking of buying this trust should be ready to take a hard look at the numbers to be released Feb. 18. I’ll be focused on the progress reducing debt, price assumptions management is budgeting for and reserve data, which trusts release annually.

At this price of 63 percent of book value and yield of more than 20 percent, however, the selling looks well overdone for the biggest of the trusts. And for those who don’t already own it, Penn West Energy Trust remains a buy up to USD20.

Again, anyone who owns even first-rate energy trusts has got to be patient. You’ve also got to be ready to ride out further weakness in the energy market, which would almost surely trigger more dividend cuts. And anyone who’s not convinced energy prices are going to ultimately recover should stick strictly to the Canadian Edge Conservative Holdings, none of which are directly exposed to energy price swings.

On the other hand, investors who can afford to hang in there are almost surely going to see their holdings at much higher levels in 12 to 18 months. And again, though current distribution levels should be considered at risk for even the strongest energy producer trusts, there will be some hefty income dished out along the way.

Accordingly, last month’s dividend cutters discussed above are buys up to the following prices: ARC Energy Trust (USD25), Daylight Energy Trust (USD11), Enerplus Resources (USD30), Paramount Energy Trust (USD10) and Penn West Energy Trust (USD20).

Note that Advantage Energy Income Fund (TSX: AVN-U, NYSE: AAV), which cut its payout in December, is still a buy up to USD10.

In the words of CEO Andy Mah, the trust is still “very excited” about its Montney shale gas play and is keeping a tight lid on debt. Mr. Mah as well acknowledges the potential for further sector dividend cuts, should energy prices take another dive.

Provident Energy Trust (TSX: PVE-U, NYSE: PVX) is also a buy up to USD10, also with the caveat that we want to see how the earnings come in.

Remember, in times of turmoil, the hard numbers are your guide to that most important of all questions: Are your holdings’ underlying businesses still standing up to the stress tests behind this historic bear market. Only a “yes” justifies sticking with them.