Income investing is all about rock-solid stability. And it’s another sign of Canada’s relative strength that the Bank of Canada (BoC) announced another 25 basis point increase to its target overnight interest rate Tuesday morning. This relative strength is a critical factor to consider as you decide how to allocate your investment capital.

Canada was unburdened by a subprime-lending-driven credit bubble, its banks largely avoided risky lending practices, and its government and people have been spared the significant costs associated with patching up holes in too-big-to-fail balance sheets. It entered the crisis on a positive long-term fiscal trajectory, having turned in a decade’s worth of balanced budgets and made slow but steady progress whittling away the federal debt.

The stimulus measures its fiscal and monetary authorities had positive impacts because Canadians weren’t already saddled with debt. What we’re witnessing up north is a normal rebound from what was for Canada a normal recession. What the rest of the developed world is experiencing are the aftershocks of painful deleveraging, counteracted in fits and starts by government efforts to boost demand.

It’s important to remember that the BoC’s latest increase–following a Jun. 3 25 basis point hike–brings its target overnight rate to a still-accommodative 0.75 percent. The BoC notes that the “underlying dynamics” for inflation are little changed, with both the headline and core rates expected to remain near the 2 percent target through the end of 2012. The statement repeats that further rate hikes “would have to be weighed carefully against domestic and global economic developments.”

The BoC revealed a downward revision for its gross domestic product (GDP) growth forecast for Canada, to 3.5 percent from 3.7 percent for 2010 and 2.9 percent from 3.1 percent. It also acknowledged that greater emphasis on balance sheet repair by households, banks and governments in a number of economies could “temper” the pace of global growth it forecast in its spring 2010 Monetary Policy Report.

Though these remain modest steps, and the statement explaining the rate decision remained ambivalent about the durability of the global recovery, Canada at least can acknowledge that the strength of its domestic economy means that the time for extreme monetary measures has expired.

We’ll hear more from the BoC–and get a better feel for its downward revisions for GDP growth when it releases its quarterly Monetary Policy Report on Thursday, Jul. 22. The central bank next speaks on its overnight interest rate Sept. 8.

Income investing should focus on establishing predictable income streams from solid businesses. This is the bottom-up story. From the top down, it helps to know conditions in the greater domestic economy and at the sovereign level are stable. In other words, balance sheet strength and the ability to grow matter at the company as well as the macro level when it comes to building long-term wealth.

BoC Governor Mark Carney has an entirely different set of problems to deal with than his US counterpart, Federal Reserve Chairman Ben Bernanke. Both have been at the forefront of the global response to the Great Recession of 2007-09, Mr. Carney as the leader of the central bank of the one healthy G-7 economy and a serious player as the G-20 became the primary venue for economic cooperation among nations, Mr. Bernanke as the top monetary policymaker in what’s still the most important economy on the planet. But Mr. Carney is balancing a robust domestic economy against external threats represented by a questionable US recovery and the integrity of European financial systems, while Mr. Bernanke is rumored to be weighing the use of his last available weapon to boost demand, encouraging banks to move excess reserves from their accounts at the Fed to consumers’ accounts by reducing the interest paid on such deposits from 0.25 percent to zero.

Canada remains a relatively small part of the global economic and financial machinery, and much of its status depends on what happens with the Goliath to its south. But over the last decade Canada has separated itself ever so slightly but meaningfully from the US. Though more than 70 percent of its trade is conducted with its southern neighbor, China’s and India’s rapid economic expansions have inevitably meant more use for Canada’s abundant natural resources.

The Canadian dollar weakened following the BoC’s announcement, reflecting traders’ views of what the central bank’s revised GDP growth estimates mean for further rate increases. We’re not long-distance mind-readers, however; our concern is not short-term fluctuations on the currency exchanges. Income investing is all about long-term fundamentals. And the picture in Canada is bright if you’re a US-based investor.

Chinese and Indian demand for oil and other natural resources has boosted Canadian wealth in the aggregate, a long-term trend reflected in the Canadian dollar’s rise from a mid-2004 low near USD0.72 to its present neighborhood in the mid-90s. The persistence of this new Asian demand makes the Great White North the place to be for long-term income investing.

The International Energy Agency (IEA) reported July 19 that China surpassed the US as the world’s biggest oil consumer in 2009. Last year China consumed 2.252 billion tonnes of oil equivalent of energy from sources including coal, oil, natural gas, hydro and nuclear power, about 4 percent more than the US, which had been the world’s biggest energy consumer since the 1900s.

Some observers now describe USD70 per barrel oil as “cheap” and a point on the side of economic bullishness. This reflects the new reality, that oil has achieved a permanently high new plateau range, driven by the emergence of middle-class appetites in a country of more than a billion people.

Look no further for confirmation of this reality than the rampant post-crisis activity focused on Canada’s oil sands regions, at the center of which are several China-linked entities such as sovereign wealth fund China Investment Corp and state-owned entities CNOOC (China National Offshore Oil Company), Sinopec (NYSE: SNP) and PetroChina (NYSE: PTR).

China’s appetites for energy products will only intensify as its economy shifts toward a consumer-demand-driven model. The Middle Kingdom registered record crude oil imports of 5.4 million barrels per day in June, pushing the import share of overall consumption past 50 percent. Crude oil imports are running at an average 4.77 million barrels per day in 2010, up more than 30 percent year over year. Total crude oil consumption was 8.71 million barrels per day, up 18.6 percent year over year.

China has eclipsed the US as the largest automaker on Earth, and it passed Germany as the No. 1 exporter. The energy consumption title is just one more piece of hardware for its expanding collection. And there are more infrastructure projects to be built and consumers to be fed.

The global financial and economic crises that began to unfold in 2007, intensified in 2008 and 2009 and persist in spooking markets today exposed a process that had been underway throughout the first decade of the 21st century.

Only the most basic contours of the new landscape have been revealed, but it’s clear that Canada will be an important part of fueling growth for emerging Asian powers as well as developed ones in its own backyard for decades to come. Successful income investing means having exposure to the high-yielding businesses that call it home.

The Streets of San Francisco

Roger Conrad and David Dittman will be patrolling the San Francisco Marriott Marquis during the San Francisco Money Show August 19-21 for Maple Leaf Memo readers who are interested in learning more about Canada’s growing global presence, who want to learn how to apply the tools we use to identify viable high-yielding business in the Great White North to establish sustainable income streams around the world, who want to know the latest on income trust conversions and who are curious about what the activities of sovereign wealth funds (SWF) such as China Investment Corp (CIC) say about the future of the world economy.

Eight score and two years ago, with the onset of the California Gold Rush, San Francisco earned a reputation as a prospector’s town. It’s time again to seek paths to prosperity–and to enjoy one of the most beautiful natural settings in the US, if not the world. Click here or call 800-970-4355 and refer to priority code 019366 to register as a guest of Maple Leaf Memo.

The Roundup

Earnings season will get underway in earnest for Canadian Edge Portfolio next week, as Aggressive Holding Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF, July 28) and Conservative Holdings AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF, July 29), Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF, July 28), RioCan REIT (TSX: REI-U, OTC: RIOCF, July 29) and TransForce (TSX: TFI, OTC: TFIFF, July 29) have confirmed plans to announce second-quarter results. We’ll have details in the Aug. 3 MLM.

Conservative Holdings

On the news and notes front, Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF) closed previously announced acquisitions of several energy infrastructure assets and various reserves, including interests in two natural gas plants located in the middle of the fund’s west central Alberta geographic focus that are both capable of extracting natural gas liquids (NGL) and handling sour gas. Total reserves acquired were approximately 8.4 billion cubic feet of proved plus probable natural gas reserves and more than 500,000 barrels of NGLs.

The total combined purchase price for the six acquisitions was CAD50 million. Keyera now has ownership interests in 17 gas plants and with net gas processing capacity of 126 million cubic feet per day. Keyera Facilities Income Fund is a buy up to USD26.

Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF) has received approval from the Energy Resources Conservation Board for the construction and operation of its Nipisi and Mitsui pipelines. The two pipelines will serve northern Alberta’s heavy oil industry.

The Nipisi will initially support 100,000 barrels per day (bbl/d) of diluted heavy oil, with design capacity of up to 200,000. The Mitsue will carry 20,000 bbl/d of condensate, a light hydrocarbon that’s used to dilute heavy oil; it’s capable of expanding to 45,000 bbl/d. Both will be in service by mid-2011, at a combined cost of CAD440 million. The pipelines are contracted for use by its “founding customers,” Canadian Natural Resources (TSX: CNQ, NYSE: CNQ) and Cenovus Energy (TSX: CVE, NYSE: CVE) of 80 percent of the 100,000 bbl/d capacity on the Nipisi and 50 percent of the 20,000 bbl/d capacity on the Mitsue. Pembina’s internal forecast indicates the two pipelines will generate approximately CAD45 million per year in combined net operating income. Pembina Pipeline Income Fund is a buy up to USD18.

RioCan REIT (TSX: REI-U, OTC: RIOCF) has waived conditions attached to a previously announced deal to buy eight retail properties in Texas via a joint venture with US-based Inland Western Retail Real Estate Trust. The portfolio of new format and grocery-anchored shopping centers covers approximately 1.1 million square feet.

RioCan is paying USD123.3 million for 80 percent of the joint venture, comprised of an USD55.1 million equity investment and USD68.2 million of property-level mortgage debt at a weighted average interest rate of 5.6 percent. These properties benefit from strong anchor tenants and are located in strong urban markets–Dallas-Ft. Worth, Houston and Austin.

Portfolio occupancy as of the date of the deal’s announcement was a reported 97, while approximately 90 percent of the gross rents are generated by national or regional tenants. The weighted average remaining lease term of the grocery anchors in the portfolio is approximately 12 years. RioCan REIT is a buy up to USD20.

The US subsidiary of TransForce (TSX: TFI, OTC: TFIFF) is buying the rig-moving, specialized heavy hauling and crane assets of EnQuest Energy Services Corp for USD32 million.

The assets being acquired generate combined annual revenue of approximately USD50 million.

TransForce’s US subsidiary Hemphill Trucking will be integrated with the new companies, which will operate as Hemphill-Speedy out of Grand Junction, Colo. The acquisition is a move by management to fortify the company’s position in the energy services industry south of the border. TransForce will now offer services in Arkansas, Colorado, Montana, North Dakota, Pennsylvania and Wyoming, all areas where shale gas activity is stimulating recovery. TransForce is a buy up to USD11.

Here are second-quarter earnings announcement dates for Conservative Portfolio recommendations:

• AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF)–July 29 (confirmed)
• Artis REIT (TSX: AX-U, OTC: ARESF)–August 11 (confirmed)
• Atlantic Power Corp (TSX: ATP, OTC: ATLIF)–August 11
• Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF)–July 28 (confirmed)
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF)–August 11
• Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF)–August 9 (confirmed)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–August 10 (confirmed)
• Cineplex Galaxy Income Fund (TSX: CGX-U, OTC: CPXGF)–August 12 (confirmed)
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF)–August 12
• Colabor Group (TSX: GCL, OTC: COLFF)–July 7 (confirmed)
• Davis + Henderson Income Fund (TSX: DHF-U, OTC: DHIFF)–July 28
• IBI Income Fund (TSX: IBG-U, OTC: IBIBF)–August 5
• Innergex Renewable Energy (TSX: INE, OTC: INGXF)–August 13
• Just Energy Income Fund (TSX: JE-U, OTC: JUSTF)–August 6
• Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF)–August 4 (confirmed)
• Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF)–August 9 (confirmed)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–August 4 (confirmed)
• Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF)–July 29
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–July 29 (confirmed)
• TransForce (TSX: TFI, OTC: TFIFF)–July 29 (confirmed)
• Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF)–August 6

Aggressive Holdings

Here are second-quarter earnings announcement dates for Aggressive Portfolio recommendations:

• Ag Growth International (TSX: AFN, OTC: AGGZF)–August 11 (confirmed)
• ARC Energy Trust (TSX: AET-U, OTC: AETUF)–August 4 (confirmed)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–July 28 (confirmed)
• Daylight Energy (TSX: DAY, OTC: DAYYF)–August 5
• Enerplus Resources Fund (TSX: ERF-U, NYSE: ERF)–August 6
• Newalta Income Fund (TSX: NAL, OTC: NWLTF)–August 6
• Perpetual Energy (TSX: PMT, OTC: PMGYF)–August 6
• Penn West Energy Trust (TSX: PWT-U, NYSE: PWE)–August 5 (confirmed)
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)–August 12
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)–August 13
• Trinidad Drilling (TSX: TDG, OTC: TDGCF)–August 11
• Vermilion Energy Trust (TSX: VET-U, OTC: VETMF)–August 6

Oil and Gas

Nexen Corp (TSX: NXY, NYSE: NXY) reported second-quarter cash flow of CAD558 million and net income of CAD255 million, reflecting stronger commodity prices. Management noted that net debt is down more than CAD400 million from a year ago and will decline further once planned asset sales close. Nexen’s strategy to focus on conventional exploration, oil sands and shale gas assets is expected to be helped by CAD1.5 billion in proceeds from divestitures, which is well above management’s anticipated CAD1 billion.

Management expects the Long Lake oil sands project to generate positive cash flow before the end of 2010; Nexen continues to move toward its 2010 production goal of 40,000 to 60,000 bbl/d. Volume has increased to 28,500 barrels per day, while operating costs remained flat–the cash flow operating loss was CAD19 million in the second quarter, down from CAD58 million in the first.

Second-quarter gross production decreased 1.6 percent from the previous quarter, to 248,000 barrels of oil equivalent per day (boe/d) due to scheduled downtime for maintenance. Management confirmed its previous forecast of 230,000 to 280,000 boe/d for 2010. Nexen Corp is a buy up to USD25.

Real Estate Trusts

Primaris Retail REIT (TSX: PMZ-U, OTC: PMZFF) is buying Cataraqui Town Centre in Kingston, Ontario, for CAD168 million from a joint venture between The Cadillac Fairview Corp, owned by the Ontario Teachers’ Pension Plan, and Ivanhoe Cambridge, a division of the Caisse de depot et placement du Quebec. The two-level mall is 95 percent occupied and is anchored by Sears, The Bay and Zellers stores.

Primaris said about CAD50 million of the transaction will be funded through cash, the rest through financing. Primaris Retail REIT is a hold.

Transports

New Flyer Industries (TSX: NFI-U, OTC: NFYIF) reported total orders for the second quarter totaled 804 buses, or 1,146 equivalent production units (EU), amounting to USD417 million. According to a company press release, New Flyer’s order backlog as of July 4, 2010, was 8,492 EUs, consistent with the 8,513 EUs in the backlog as of April 4, 2010. The firm portion of the total backlog increased in the second quarter by 351 EUs, from 1,785 EUs to 2,136 EUs. The dollar value of the order backlog as of Jul. 4 was approximately USD3.5 billion, compared with a value of USD3.6 billion as of Apr. 4. Clean propulsion vehicles represent approximately 63% of the total backlog. New Flyer Industries is a buy up to USD11.

Student Transportation (TSX: STB, OTC: STUXF) completed the acquisition of Leuschen Bros Limited, a school bus operator based in Sudbury, Ontario. Though management didn’t disclose the purchase price, it did say the deal was financed through an existing credit facility. And Leuschen Bros and its 250-plus vehicles will add CAD12 million to net revenue and be immediately accretive for shareholders.

Leuschen’s primary school bus transportation contract runs through June 2016 with agreed upon annual rate increases. The company also provides transportation services to physically disabled residents of Greater Sudbury, operating as part of the city’s Handi-Transit system. Student Transportation sees “contracted transportation” as an important part of its long-term growth strategy. Student Transportation is a buy up to USD7.