On the secure dividend side of the spectrum is RioCan REIT (TSX: REI-U, OTC: RIOCF). Canada’s largest real estate investment trust is also one of its oldest, with a successful track record dating back to 1994.

As was the case in the 1990s, Canada’s property market is weakening in the face of an economic contraction. And just as it did back then, RioCan management is gearing up to take advantage, using its unmatched scale and financial power to snap up first-rate shopping mall properties at discounted prices from distressed owners.

Last month RioCan completed the purchase of six grocery store-anchored shopping malls in the greater Montreal area for CAD67.5 million. The REIT’s share of the cost was CAD47.5 million, owing to a deal to split ownership on four of the properties with a private investor. That’s the kind of risk-splitting transaction management has become famous for, stretching out the buying power of its capital while limiting potential worries from any one property. The six malls are more than 99 percent occupied and the grocery anchors provide solid recession protection as well.

Shortly after completing this deal, RioCan again demonstrated its financing agility, as well as investors’ willingness to buy its debt at good rates, by issuing CAD180 million in new bonds. The proceeds will go to reduce debt and improve liquidity, as well as to finance what are certain to be many more deals.

The offering immediately won solid marks from credit raters Standard & Poor’s and Dominion Bond Rating Service. S&P cited the REIT’s “high occupancy, diverse tenant base and manageable lease exposure” in forecasting “cash flows that will prove more stable relative to US peers.” DBRS, meanwhile, awarded the issue its equivalent of a BBB+ rating.

RioCan has consistently been one of the first Canadian Edge Portfolio holdings to report earnings. Its April 30 date for first quarter 2009 numbers is the earliest announced so far. And based on what we know about its health, we can look forward to good news.

Fourth quarter funds from operations were slightly below last year’s, owing in part to the cost of moving corporate headquarters and other ephemeral expenses. The payout ratio, however, was still a comfortable 88 percent.

Overall occupancy was 96.9 percent, and rents on expiring leases rose an average of 11.7 percent. The REIT retained 85.8 percent of expiring leases in 2008, virtually identical to 2007’s retention rate of 86.1 percent. And that rate actually jumped sharply in the fourth quarter to 92.5 percent. Those results are particularly strong considering 17 tenants went bankrupt last year. Debt leverage finished the year at 54.9 percent of the property portfolio’s historical cost, well below the fund’s conservative 60 percent threshold under its charter.

In 2008 the REIT acquired 26 properties comprising 1.6 million square feet of rental space, or a net interest of 827,000 to the REIT after the interests of its financial partners. It also completed 800,000 square feet of “greenfield” development, for a net interest of 462,000. The acquisitions cost CAD162 million, financed at a rate of 7.2 percent, while the greenfield projects cost CAD217 million financed at 8.4 percent. That increased overall property under management by 3.4 percent from 2007 levels.

Looking ahead, RioCan has a full plate of property development work, with five major projects in various stages. And its financial power makes more acquisitions nearly certain as well. But its greatest strength in this recession is its extremely diversified, high-quality property portfolio. The 241 operating retail properties and 16 under development encompass 59 million square feet. Extremely secure “anchor” tenants contribute 83.4 percent of rental revenue, and no single client has more than 5.4 percent of the total.

In its mid-February conference call, management asserted “the portfolio is performing as well as we could have hoped” this year. There has been an increase in “unbudgeted vacancies,” due in large part to bankruptcies. But the total of less than a quarter of a percentage point of revenue is only slightly above the 20 basis points recorded in 2007. And efforts to release the space have gone well.

In other words, RioCan isn’t wholly inoculated against the weakening Canadian economy, but it’s close. And to date, at least, it’s taking advantage of the weak environment to build future growth. That makes its yield of more than 11 percent all the safer. Trading at just 1.5 times book value, RioCan REIT is a strong buy up to USD15 for even the most conservative investors.

In contrast, Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF) is very much exposed to the recession. All revenue comes from producing natural gas, which has been hit particularly hard by the collapse in energy prices.

Dividends have been cut twice already in 2009 and a total of five times since mid-2006, when gas prices began their roller-coaster ride of the past two-plus years. And the current yield of 18.3 is a clear sign many investors expect still more carnage ahead.

To date only three oil and gas producer trusts tracked in How They Rate have avoided dividend cuts during this down cycle. All are exceptionally low-debt, low-cost and low-payout trusts with steady and balanced production profiles and long life reserves.

Their situation is like night and day from Paramount. The trust does have a rising production profile, lifting output 7 percent in 2008 on the strength of targeted development and successful acquisitions. And it’s made dramatic efforts to cut borrowings in recent years, reducing net debt by more than CAD50 million in 2008.

The trust has also reduced risk historically by aggressively hedging its output by a variety or means. Currently, some 57 percent is locked in for 2009 at attractive prices, and roughly half is hedged through March 2011 as well. Current mark-to-market gains–what the trust would realize if it closed all of its hedge positions now–was more than CAD170 million as of early March 2009, and has appreciated further since. That’s effectively cash the trust can access at any time.

Of course, that still leaves a sizable percentage of output that’s not hedged. Then there’s the still heavy debt load, a legacy of the trust’s biggest acquisition to date–Dominion Resources’ (NYSE: D) Canadian exploration and production properties in 2007. Net debt to cash flow came in about 2.1 in 2008, but it’s likely to go higher next year due to lower realized natural gas prices. Some CAD236 million of its debt is convertible bonds, providing some financing flexibility not readily apparent from the raw numbers.

Finally, the nature of the trust’s reserves adds up to generally high depletion based on reserves that meet the “proven” definition. Put another way, the trust’s reserve life index (RLI) is only about 4.5 years based on the proven category, one of the lowest in the industry.

As CEO Susan Riddell Rose explains, that strict definition of RLI is misleading on several counts. First, it ignores the reserves the trust still owns that have been shut in due to their proximity to the oil sands. Second, it discounts the trust’s bread and butter, which is its huge land base and wealth of sometimes unconventional projects, such as dry reservoirs that are prime candidates to be rejuvenated with captured carbon dioxide.

I’ve covered Paramount in Canadian Edge now for nearly five years, and it’s always had an RLI of roughly 4.5 years based on proven reserves. Management reckons its true sustainability by its developed and undeveloped land position, which continues to replenish with acquisitions. Incidentally, that strategy also carries the additional benefit of increased capital spending flexibility, as the trust can shelter cash in the near term with less spending on land development while keeping production levels relatively steady.

On the land front, the most important development for Paramount has been expansion in areas of southern Alberta that can be developed year round, as opposed to the winter only properties it initially specialized in. This month’s acquisition of Profound Energy (TSX: PFX, OTC: PFXYF) fits that category, adding extensive properties in Paramount’s designated “new venture” area that will immediately boost annual production by 10 percent and reserves by 15 percent.

Having properties that can be developed year round ensures the trust will earn cash flow throughout the year. The cost of CAD112.9 million includes the assumption of CAD61.5 million of debt and has a very manageable maximum cash component of CAD15 million that won’t interfere with the long-term strategy of trust-wide debt reduction.

In its mid-March conference call, management asserted that its reserve development and hedging strategy made it arguably the most sustainable trust in the industry. In my view, that’s stretching a point given its heavy long-run exposure to the natural gas market. But it’s defensible that investors are dramatically over-estimating Paramount’s real risk with net asset value 2.5 times the trust’s market value.

As I’ve said, the bottom line on every energy producer trust is oil and gas prices. When they revive, we’ll see monster gains. But until we do, all we’re going to get is dividend cuts and sometimes wild price volatility. If that’s not the kind of bet you want to make, you’re far better off with RioCan. If you want a high-stakes bet on natural gas, however, you’re rarely going to see something this cheap and compelling. Buy Paramount Energy Trust up to USD5, if you haven’t already, and hang on for the ride.

RioCan REIT shouldn’t be subject to trust taxation beginning in 2011. The trust, however, is considering an alternative “staple share” structure that would enable it to make investments that would otherwise disqualify it for REIT status under Canada’s 2006 Tax Fairness Act, such as an expansion in the US or further partnering with big money. Either way, however, there should be no impact on distributions.

Paramount Energy Trust will face the choice of either paying the trust tax or converting to a corporation, though management will be able to utilize considerable tax pools to minimize liability. The upshot, however, is the level of natural gas prices will have a far greater impact on what the trust can pay in distributions than how it’s taxed.

Both RioCan and Paramount pay dividends that 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–can be accessed by going to the menu item “Income Trust Tax Guide” and proceeding to “Links to US Tax Statements.”

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.

For more information on Paramount and RioCan, visit How They Rate. Click on the “.UN” symbol to go to the website 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 websites.