The losses of late spring and early summer are mostly erased. In fact, several Canadian Edge holdings–led by Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF)–have pushed out to new all-time highs. That’s well past where they traded before the 2008 crash, as well levels held before the so-called Halloween massacre of 2006.

Ultimately, I fully expect all CE Portfolio selections to follow Keyera’s example. Investors are gradually coming around to the realization that 2011 trust taxation isn’t anything close to the catastrophe some envisioned. And they’re simultaneously losing their fear of a reprise of 2008 as well.

The inevitable result: These companies that have proven the strength of their underlying businesses amid the worst macro conditions in 80 years are at least getting some respect in the stock market. It may take a while for the most battered Portfolio selections, like Newalta Corp (TSX: NAL, OTC: NWLTF), to reclaim their pre-crash highs.

But as long as they continue to perform as businesses, share price recovery will follow, sooner or later. All we really have to do to is be patient and watch the numbers.

Watching the numbers is, of course, what earnings season is all about. I explore all the relevant data below for Portfolio recommendations. Associate editor David Dittman looks at results for select non-Portfolio companies in Canadian Currents, and we have data on other reporters in How They Rate.

Roughly half of the Portfolio companies have yet to report their second-quarter results, and that percentage applies to the rest of the How They Rate universe as well. But a few key takeaways from this season are already crystal clear.

First, if businesses were solid in the first quarter, they were doubly so in the second. The Canadian economy still isn’t where it was in 2007 or even 2008 before the market crash. But the survivors of the meltdown have certainly learned how to make money in the current environment.

For oil and gas producers, low prices particularly for natural gas this year have made the challenges particularly acute. Yet our picks have continued to cover distributions comfortably while cutting costs and debt and expanding reserve and production potential by relentlessly focusing on efficiency. All are in great shape to produce higher cash flows in the second half of the year, even if oil and gas prices stay right where they are now.

Our energy infrastructure plays continued to expand their bases of fee-generating assets, taking advantage of growth in shale and oil sands development as well as very low capital costs. Meanwhile, our real estate investment trusts (REIT) posted perhaps the greatest improvement, as investments made at last year’s bottom began to pay off.

Second, all of the companies to report so far have reported solid coverage of distributions. The only exception for the second quarter was Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF), due to the temporary shutdown of its Beaumont, Texas, plant. Even that company, however, posted solid first-half coverage, and management has further affirmed it has the reserves to make good on the payout until Beaumont returns to service.

Third and most encouraging, we’re seeing the first signs of a revival in dividend growth. Both Newalta and Northern Property REIT (TSX: NPR-U, OTC: NPRUF) announced boosts with their second-quarter results, their first in several years.

I expect to see a lot more in coming quarters, as companies put 2011 transitions behind them and begin to reap the fruits of several years of savvy investments. That’s a catalyst for upside not a lot of investors are expecting now as they focus on potential dividend cuts from conversions.

As has been all too clear over the past year, this remains a stock market gripped by fear. And as long as that’s the case, it won’t take much to trigger a repeat of May’s Flash Crash, as investors remain ready to run at the first sign of danger.

That’s no way to make money in any market. And the cut-and-run mentality makes even less sense when it comes to income investing, which depends on sticking around to capture dividends and interest to be successful.

Again, the example of this summer’s recovery from the Flash Crash–as well as the continuing recovery from the 2009 collapse–show pretty clearly that holding good businesses through thick and thin is the only income investing strategy that makes any sense. These second-quarter results and the surges in several Canadian Edge recommendations to new highs this summer are all the evidence anyone should need to confirm that.

That may be hard to remember the next time market volatility flares up. But if you can hang in there with good companies throughout the market’s emotional swings, the upside we’ve seen since the March 2009 low is only just beginning to unfold.

The business is still the thing. Keeping your feet on the ground and focusing on your companies–and ignoring the bluster coming from the pundits operating at 30,000 feet–is more critical than ever.

The Numbers

Last month I reported second quarter results for Colabor Group (TSX: GCL, OTC: COLFF). Those numbers again reflected a business that remains both largely downturn proof and poised for growth by acquisition. Coupled with a very sound and still de-leveraging balance sheet, that’s strong support for the quarterly distribution of nearly 9 percent. Colabor Group remains a buy up to USD12 for those who don’t already own it.

Below I highlight results for 14 other Portfolio holdings, all of which came in with at least equally compelling numbers. Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF) is a High Yield of the Month selection and is focused on there. So is new Aggressive Holding Parkland Income Fund (TSX: PKI-U, OTC: PKIUF).

Starting with Conservative Holdings, AltaGas Ltd (TSX: ALA, OTC: ATGFF) has completed its conversion to a corporation. The two things that have changes are the Toronto Stock Exchange (TSX) symbol, which has now dropped the “-U,” the “.UN” and the distribution rate, which now at a monthly rate of CAD0.11.

Other than that, as second-quarter numbers confirm, AltaGas is pretty much the same reliable growth and income company. Even the over-the-counter (OTC) symbol, which was temporarily suspended for a few days last month, is back to the old ATGFF.

Three-month funds from operations (FFO) came in at CAD0.54 per share, covering the 11 cent distribution by a comfortable 1.64-to-1 margin. The payout ratio was 61 percent. Net income was lower due to the impact of mark-to-market accounting, which was partly offset by the acquisition of natural gas distribution assets and higher profits from green power production. That should reverse in coming quarters, allowing the quarter’s double-digit revenue gain to flow to the bottom line.

Looking ahead, asset accumulation is set to continue driving business growth. This spring, the company has signed a 60-year inflation indexed sales contract with British Columbia power authorities for its Forrest Kerr hydro power project. Forrest is the first of three similar plants with a total capacity of 277 megawatts (MW) expected to come on line in mid-2014. Later this year, a series of natural gas infrastructure projects will come on line and start generating cash flow, as will a 13 MW gas-fired cogeneration plant.

That’s all part of a planned CAD2 billion capital spending program on fee-generating power and gas infrastructure assets, that will be financed in large part without having to access capital markets. And management continues to lock out exposure to commodity price swings with a disciplined hedging policy.

The stock has surged since converting but is still below the mid-20s range, where it sold from mid 2005 through mid-2008. I fully expect a return visit to those levels in the coming months, even as the company returns to dividend growth. AltaGas Ltd is a super buy for growth and income up to USD20.

Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF) won’t convert to a corporation until the end of 2010. The company, however, has removed all 2011 taxation uncertainty by setting a post-conversion dividend rate of CAD1.90 per year, paid quarterly beginning at CAD0.475.

In my view, the 2011 rate was set somewhat below what Bell Aliant could have afforded, at 34.5 percent below the current monthly rate of CAD0.2417 that will be maintained until the end of 2010. That savings, however, will greatly enhance the company’s construction of a state-of-the-art fiber-optic network in its mostly rural service territory, which is the key to the company’s long-run prosperity and ability to deliver dividends.

Like all traditional phone companies, Bell Aliant continues to lose local phone connections, as consumers move to cable and wireless rivals. The fiber network, however, puts the company head and shoulders above rivals in terms of broadband capacity.

Meanwhile, management continues to boost margins from its remaining traditional business by cutting costs and reducing the pace of line losses. These were 26 percent lower than a year ago, for example, continuing a favorable trend of prior reporting periods. Operating costs were slashed CAD21 million over last year’s levels, while cash flow margin rose to 47.4 percent from 46.8 percent.

It all added up to relatively flat headline numbers on both the top and bottom lines. But with the company’s business transitioning to faster-growing services such as the broadband Internet (revenue up 7 percent) and internet television, its long-term fortunes are increasingly solid.

Trading with a yield of 7.5 percent based on its initial level as a corporation, Bell Aliant Regional Communications Income Fund is a solid buy up to USD27 for those who don’t already own it.

IBI Income Fund’s (TSX: IBG-U, OTC: IBIBF) earnings continue to reflect the impact of the US recession. Unlike prior periods, however, the second quarter saw marked improvement in many areas.

For starters, distributable cash flow (DCF) covered the dividend by a 1.03-to-1 margin for the quarter and closed the gap to 0.95-to-1 for the first half of the year. That’s a big lift from the first quarter, when coverage briefly dipped to 0.88-to-1. And it reflects both better management of the risk of cross-border operations and robust expansion of order backlog, the result of several years of targeted acquisitions and an improved business environment.

Revenue was still lower than expected, the result of “slippage” of progress of certain public projects in Canada and further “softening” of markets in Florida, Michigan and New York. Backlog of committed work, however, has jumped to a multiple of what it was earlier in the year. That means more orders, higher revenue and greater cash flow ahead.

The company also announced the approval of unitholders for its plan to convert to a corporation on or about Jan. 1, 2011. Until that time, it will pay the same distribution it does now. Management has yet to make a decision on the post-conversion distribution. But the company’s basic ownership structure will remain the same and management has pledged to maintain its dividend-paying focus.

My forecast remains for a small reduction that will leave a generous yield and not impeded IBI’s ability to generate strong unitholder returns. IBI Income Fund remains a buy up to my target of USD15.

Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF) posted somewhat lower DCF than a year ago. The primary reasons were scheduled maintenance for gathering and processing facilities, lower revenue from energy marketing operations and one-time writedowns due to interest expense and a revaluing of natural gas liquids reserves. DCF per share, however, still covered the payout, even as the company continued to expand its asset base at a torrid clip with a planned CAD80 million to CAD100 million in growth capital expenditures.

Plans to add a second storage cavern at the Fort Saskatchewan facility continue to progress toward 2013 completion. The company also acquired ownership interests in two additional gas plants, bringing its total to 17. And a 40 million cubic feet expansion of the Caribou plant was completed in June and is now adding to cash flow.

The upshot is Keyera is taking advantage of its strong financial position and bargain prices for solid assets with cash-hungry owners. The Alberta government’s switch to its most favorable regulatory regime in decades is another huge plus, increasing activity in shale rich regions that are the company’s bread and butter.

The company was among the first to announce it would convert to a corporation without cutting its distribution. Though actual conversion likely won’t take place before the end of the year, this remains the objective. And these results show management has the wherewithal to do that, even while maintaining growth.

The only problem with buying Keyera now is the shares have run to a new all-time high, well above levels it held before Finance Minister Flaherty announced his tax on trusts. That’s exactly what I expect to see other high quality trusts do, as they cast off four years of investor misperceptions and overblown fears. But for now I’m holding my buy target for Keyera Facilities Income Fund to USD26.

Northern Property REIT’s (TSX: NPR-U, OTC: NPRUF) unit price is still around 10 percent off its pre-2008 crash high. But its monthly distribution is at a new peak after management lifted its 3.9 percent this week, resuming growth that had been interrupted for two years by economic uncertainty.

Northern Property’s return to dividend growth is well backed up by its second-quarter numbers. Net operating income (NOI)–the key measure of the performance of REIT properties–was up 5.6 percent, as vacancy rates fell and rents rose. The company also continued to cut costs and strengthen its balance sheet, as well as take advantage of robust growth in Newfoundland, Northwest Territories and Nunavut, remote areas where it’s often the only game in town. The second quarter payout ratio came in at just 62.2 percent, the best coverage in the sector.

Management also released more details regarding its compliance with new tax rules for REITs that will take effect in 2011. The plan now is to leave Northern Property’s basic structure alone but to spin out certain assets into a new taxable corporation that will be structured as a “stapled share.” That is a single security consisting of a high-yield bond and an equity portion. It will distribute these to shareholders sometime later this year. Organization costs are not inconsiderable but are one-time items that won’t affect profitability.

The new plan removes considerable uncertainty from Northern Property. Meanwhile, the strong second-quarter results, an increasingly favorable outlook and this week’s dividend increase point the way to strong unitholder returns for years to come. Buy Northern Property REIT on dips to USD22 or lower.

Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF) reported fatter second-quarter revenue than a year ago, the result of prior months’ acquisitions of conventional energy infrastructure assets such as the Cutbank complex. Cash flow from operating activities surged 38.4 percent, while net earnings ticked up 13.8 percent.

DCF was basically flat for the quarter and up slightly for the year, owning mainly to the high level of capital expenditures at the company. The biggest ongoing effort is in the oil sands region with the Mitsue and Nipisi projects. These received regulatory approval from the Energy Resources Conservation Board in July and are now on track for completion in mid-2011. Capacity is already mostly contracted out, meaning the new assets will begin producing sizeable cash flow almost immediately.

Pembina is also on track for a solid expansion of its natural gas liquids (NGL) processing facilities at the Cutbank complex. Engineering is approximately 35 percent complete and construction is on track to commence this fall, with startup in mid-2011.

Management is on track to complete Pembina’s conversion to a corporation on Oct. 5. The company will continue to pay the same distribution at least through 2013, with the level after that depending on the ability to pursue and complete new infrastructure projects. Fortunately, that doesn’t appear to be a problem given management’s expertise, the trust’s growing financial power and the revival of Canada’s energy patch, particularly around the oil sands and NGL businesses Pembina targets.

Buy Pembina Pipeline Income Fund up to USD18 if you haven’t yet. Note that Pembina has also broken out to new all-time highs, beyond its pre-Halloween massacre trading range.

RioCan REIT’s (TSX: REI-U, OTC: RIOCF) aggressiveness since the 2008 crash is at last paying off in higher revenue and cash flow. Second-quarter FFO soared 37 percent and 26 percent on a per unit basis. NOI–a measure of the performance of properties owned for a year or more–soared 17 percent for the quarter, as occupancy surged to 97 percent and rents returned to the upside. And the payout ratio sank toward 90 percent, its lowest level in many months.

All this is basically what management consistently projected when it staunchly maintained its distribution was safe, despite posting quarterly payout ratios over 100 percent in 2009. The problem was never portfolio strength. Rather, it was dilution from the large amount of cash raised to finance acquisitions that took longer to pinpoint and complete than expected. Now those deals are in hand and the properties are producing.

Encouragingly, RioCan’s biggest strategic move over the past year is only starting to pay off. That’s its foray into the bombed out US market through its joint venture with Cedar Shopping Centers. The venture completed the purchase of a Pennsylvania center last month for USD53 million that’s expected to start adding immediately to cash flow.

RioCan also expects several greenfield developments to come on line in 2010 and for occupancy rates to rise another 50 basis points by year’s end. Same-store rent growth is projected to average 2.5 to 3 percent. And the company continues to take advantage of low interest rates to slash operating costs.

That adds up to continued cash flow gains the rest of the year, even if Canada’s commercial property market should slow. Units are still somewhat below their all-time highs reached in mid-2007. But at this pace it won’t be long until they reclaim those heights. Buy RioCan REIT up to USD20 while you can.

TransForce (TSX: TFI, OTC: TFIFF) posted a 9 percent boost in revenue, triggering a 29 percent lift in operating income and an 85 percent surge in adjusted net income. The key was management’s relentless targeting of profitable niches and cost controls, as the operating income margin was boosted from 12.2 to 14.2 percent.

Encouragingly, the numbers also showed stabilization in the still-depressed North American trucking and transport industry. Management sounded a definitely cautious note in its outlook, which accompanied the numbers, affirming only that “conditions have not deteriorated further in the past three months.”

That’s hardly a bullish projection. But its stated focus on what it can control–costs, operating effectiveness and pricing discipline–are a solid indication that it will be able to protect operating margins. Coupled with continued capital expenditures on its transport network, the company is set to grab its share of growth as better macro conditions return. TransForce has also basically eliminated its near-term refinancing risk and continues to progress toward its goal of slashing overall debt CAD100 million in 2010.

Such management discipline is in fact what attracted me to TransForce in the first place. Now that vision is starting to pay off with share price gains that should continue to flow as the Canadian economy bounces back. Buy TransForce up to USD11.

Turning to the Aggressive Portfolio, ARC Energy Trust (TSX: AET-U, OTC: AETUF) enjoyed a 45.5 percent surge in second-quarter cash flow per share, the account from which distributions are paid. Gains were fueled by combination of 3.5 percent production growth. Management expect those gains to continue in the second half of 2010, with the exit rate on output rising to the 72,500 to 74,500 range in barrels of oil equivalent per day (boe/d).

That’s a further 10 to 12 percent gain from the second quarter output level of 66,208 boe/d. The good news for ARC holders is it reflects the continued success of development, in large part of the Montney Shale holdings and the company’s success in finding new long-life pools of reserves to sustain further production, cash flow and dividends.

ARC also showed some improvement in realized selling prices for its energy output. The largest gains were in natural gas liquids pricing, where prices rose from roughly CAD39 per barrel of oil equivalent (boe) last year to CAD53 this year. Encouragingly, realized prices for oil and gas were both below current spot prices, a good sign that they’ll also be a driver of better results later in the year.

Management’s plan is still to convert to a corporation at the end of the year. It’s also pledged to maintain a “similar” dividend policy as a corporation, as well as to pay monthly. The amount, however, will depend heavily on energy prices that prevail when conversion takes place. In any case, high-quality ARC Energy Trust remains a buy up to USD22 for those who don’t yet have a position.

Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF) took a hit to its second-quarter cash flow from the continued shutdown of its Beaumont, Texas, chemical plant. The facility was shut down following a fire on May 15 and is expected to remain shuttered until October. Management estimates the incident shaved CAD0.08 per unit off bottom-line DCF, enough to push the payout ratio over 100 percent for the quarter.

The good news is repairs on well on track at Beaumont. The company has contracts in place to make up for the shortfall in supply that ensure it won’t lose customers. And reserves are more than adequate to maintain the payout while Beaumont is off line. Six month DCF, for example, covered the payout by a comfortable 1.25-to-1 margin.

A serious setback to efforts at Beaumont would cause me to reconsider my recommendation. But with demand for Chemtrade’s products well above 2009 levels and accelerating–and input costs low–a return to operation will be all the tonic needed to take the trust’s profits sharply higher. In fact, absent the Beaumont trouble, they’d already be there, setting the stage for a possible distribution increase. And the balance sheet is solid, with the company paying off CAD79 million in debt this year.

Chemicals is a volatile business, and that’s why Chemtrade–an otherwise conservatively run company–is an Aggressive Holding. But its yield of well over 10 percent still looks pretty solid at these levels, and the trust’s odds of reaching its old highs and better look very good as the global economy improves. The company also faces no prospective 2011 taxation, owing to its huge base of revenue out of Canada. Buy Chemtrade Logistics Income Fund up to USD12.

Daylight Energy Ltd (TSX: DAY, OTC: DAYYF) continues to roll up massive increases in output, both from accelerated development of its existing properties and acquisitions. The 42,273 boe/d produced in the second quarter are 83 percent above the year-earlier tally and another 6 percent higher sequentially than the first quarter.

The company also set the stage for further growth by closing the acquisition of West Energy Ltd, partly financed with the proceeds from sales of assets outside its core Deep Basin Alberta and Northeast British Columbia plays.

Bottom-line results were tempered by continued weakness in natural gas prices, which still account for the lion’s share of Daylight’s output. Average price received for gas fell to just CAD3.94 per thousand cubic feet, 26 percent below year-earlier levels. The company also realized lower returns from light oil (down 7 percent), natural gas liquids (down 10 percent) and heavy oil (down 14 percent).

The good news is those prices are well below current spot prices and should therefore come up sharply in the second half of 2010. Light oil has particularly bright prospects, and recent moves have oriented Daylight strongly in that direction, with 45 percent of cash flow going forward projected to come from there. Meanwhile, the company continues to cut costs and the post-conversion dividend rate was still covered by more than a 2-to-1 margin by DCF.

Daylight shares took a hit this summer, falling under USD9 on the post-conversion dividend cut and concerns about natural gas prices. Shares have rebounded some this month but still trade at a sharp discount to the value of the company’s proven reserves. The yield is lower than that of many of Daylight’s peers, but it’s solid and is set to go a lot higher in coming years, as the company boosts output and energy prices edge higher. I still rate Daylight Energy Ltd a buy up to USD11.

Enerplus Resources Fund (TSX: ERF-U, NYSE: ERF) continued its strategic repositioning in the second quarter, bolstering its holdings of raw land to more than 350,000 net acres, primarily in the Marcellus Shale and Bakken light oil plays. It also strengthened its balance sheet by inking a new CAD1 billion credit facility, bringing down its debt-to-cash flow ratio to an industry low 0.9-to-1. Only CAD170 million is now drawn on the bank.

In addition, operating costs per boe in the second quarter, normally a period of higher levels due to weather conditions depressing impact on drilling, were slashed to CAD9.82. And administrative costs were slashed to CAD1.89 per boe.

Management also increased capital spending on development to CAD485 million and updated exit production guidance for 2010 to 85,000 to 86,000 doe/d. Development capital spending for the quarter was nearly three times the level of a year ago. Meanwhile, the payout ratio for the quarter was just 59 percent, while the adjusted payout ratio–including all capital spending–came in at just 115 percent for the quarter and 107 percent for the year. The latter figure indicates the company is covering virtually all of its aggressive development efforts with internally generated cash flow.

That’s an objective it expects to meet after converting to a corporation on or about Jan. 1, 2011, even while maintaining its post-conversion distribution at current payout levels. And management affirmed it once again during the company’s second quarter conference call.

Again, no oil and gas producer is immune from ups and downs in energy prices. Another crash like that of 2008 wouldn’t sink Enerplus, thanks to management’s conservative financial strategy and success in repositioning its production portfolio this year. But it would make holding the current distribution considerably more difficult.

No one should ever mistake an oil and gas producer like Enerplus with a Conservative Holding. But for those who want to play energy prices while garnering a 9 percent-plus dividend that’s Fort Knox safe under all but the most extreme circumstances, Enerplus Resources Fund is a buy up to USD25.

Newalta Corp (TSX: NAL, OTC: NWLTF) is raising its quarterly dividend from a nickel a share to a new rate of CAD0.065. That’s still nowhere close to the CAD0.185 paid monthly before the company’s early 2009 conversion to a corporation. But it’s a crystal clear sign that the hard times are now behind this provider of environmental cleanup services to Canada’s energy and industrial production base.

Second-quarter revenue surged 23 percent, triggering a 46 percent jump in cash flow adjusted for one-time factors. That was an accelerated pace from the first quarter, and management expects even better results in the second half of the year, as activity revives, particularly in the energy patch, and the price of byproducts from cleanup efforts stays strong. The company also continues to record improving profit margins on revenue earned, the legacy of several years of adjusting to extraordinarily harsh business conditions.

A relentless focus on growing market share is what attracted me to Newalta in the first place and induced me to stick around during the hard times as well. That emphasis continues today, as the company has doubled its “growth” capital expenditures over last year’s level. And no one in this industry knows how to spend that money better.

Despite a sharp recovery off early 2009 lows, Newalta shares today are still less than one-third the highs they held mid-way through the last decade. Those low levels won’t last long, particularly as Canadian economic activity revives. Buy Newalta Corp up to USD10.

Penn West Energy Trust (TSX: PWT-U, NYSE: PWE) is still being coy about what its distribution will be when it converts to a corporation, which is now expected at the end of the year. Fortunately, while that question still seems to be obsessing investors, it’s progressively less important to the oil and gas producer’s long-term return potential.

Second-quarter results were again negatively impacted by lower realized selling prices for energy, particularly natural gas. But the company stayed on track for full-year production guidance of 164,000 to 172,000 boe/d after the effect of the Peace River Oil Partnership transaction. This deal, inked with China’s leading sovereign wealth fund China Investment Corp (CIC), provides the funding to develop the company’s primary oil sands play while allowing the trust to reach its debt reduction goals.

Penn West slashed net debt by CAD750 million during the first half of 2010 with proceeds received from asset dispositions, proceeds from an equity issue and cash from CIC. That translates into a 35 percent cut in overall long-term debt, and further reductions are planned the rest of the year.

At the bottom line, FFO per unit slipped to CAD0.62 from CAD0.81 a year earlier. That pushed the payout ratio up to 72.6 percent. The good news is that ratio looks set to drop again in the third quarter, as realized selling prices improve from the second quarter’s USD67.70 per boe for light oil and CAD3.83 per thousand cubic feet for natural gas. The company should also see some drop in costs per boe of output, as efficiencies kick in and volumes improve scale.

Management now expects full-year 2010 capital spending to come in at the upper end of prior projections of CAD700 to CAD850 million, with an increased focus on light oil plays. That effort will further increase the value of reserves, which is already well above the company’s share price.

In its second-quarter conference call, Penn West CEO William Andrew stated the company will be providing details on its corporate conversion “early in September.” The goal is to “set the fourth quarter of 2010 as a template for 2011” and management will be “advising the Board on anticipated future growth plans and dividend levels.”

My expectation is for a reduction in the distribution level. The larger the cut, the greater the near-term impact will be on the share price, as some yield-focused investors cash out. Should we see a particularly steep cut–say, 50 percent–the important thing to remember is any reaction will be temporary. That’s because Penn West is ultimately going to be valued by the institutions that dominate the market on the basis of its reserves and potential output, and the outlook for these is very bright indeed.

Should Penn West unexpectedly not cut or keep its reduction to something modest, we can expect an immediate surge in the shares, very likely to the mid-20s if energy prices are at least at current levels then. But all holders of this trust need to be ready to hang on if there is a cut and a sharp reaction.

I wouldn’t under any circumstances place a tight stop on this one, as it’s an invitation for a whipsaw no matter what happens. If you can’t stomach the thought of seeing Penn West at USD15 or USD16 before its ultimate assault on USD30, you don’t want to be in it.

My advice for those who can handle the potential volatility remains to buy Penn West Energy Trust up to USD22.

What to Watch

Government austerity programs and better economic news from Europe dramatically calmed the credit markets over the past month. But even if another crunch did occur, CE Portfolio holdings will be well prepared, in fact better than ever.

That’s the clear takeaway from the table of Portfolio companies showing debt maturities and expiring credit agreements in 2010 and 2011. As was the case last month, I show debt due before the end of 2011 as a percentage of market capitalization, along with the percentage that has fallen or risen over the past month:

Conservative Holdings

• AltaGas Ltd–6.0%, -4.7% (debt due, change)
• Artis REIT–0.3%, same
• Atlantic Power Corp–0%, same
• Bell Aliant Regional Communications Income Fund–0%, same
• Bird Construction Income Fund–0%, same
• Brookfield Renewable Power Fund–0%, same
• Canadian Apartment Properties REIT–0%, same
• Cineplex Galaxy Income Fund–0%, same
• CML Healthcare Income Fund–0%, same
• Colabor Group–9.9%, -25%
• Davis + Henderson Income Fund–0%, same
• IBI Income Fund–0%, same
• Innergex Renewable Enenergy–0%, same
• Just Energy Income Fund–2.1%, same
• Keyera Facilities Income Fund–2.9%, same
• Macquarie Power & Infrastructure Income Fund–11.5%, same
• Northern Property REIT–0%, same
• Pembina Pipeline Income Fund–1.1%, same
• RioCan REIT–4.0%, same
• TransForce–0, -100%
• Yellow Pages Income Fund–3.0%, same

Aggressive Holdings

• Ag Growth International–0%, same (debt due, change)
• ARC Energy Trust–1.8%, same
• Chemtrade Logistics Income Fund–22.9%, up 64%
• Daylight Energy Ltd–0%, -100%
• Enerplus Resources Fund–0%, same
• Newalta Corp–0%, -100%
• Parkland Income Fund–0%, same
• Penn West Energy Trust–2.8%, same
• Perpetual Energy–0%, same
• Peyto Energy Trust–0%, -100%
• Provident Energy Trust–8.1, -7%
• Trinidad Drilling–0%, same
• Vermilion Energy Trust–0%, -100%

None of these companies have significant refinancing risk. Even Newalta Corp and Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF), which I cited last month for having significant amounts of debt to refinance through the end of 2011, have now cut their exposure to zero.

Refinancing risk is very low to nonexistent for Canadian Edge picks. And it continues to decline as companies take advantage of what are still near record low interest rates to strengthen their balance sheets. Our picks are better equipped than ever to handle another 2008-style meltdown.

The count now stands at seven for Portfolio members that haven’t set post-corporate conversion dividends. The bad news is most if not all of them are likely to keep that information to themselves until we get a lot closer to their ultimate conversions.

Parkland has been the most specific about its plans, setting a target of between 75 and 110 percent of the current level. The final amount will likely depend on how close management comes to hitting its growth targets for this year and we may get more clues when second quarter numbers are released Aug. 16.

For ARC Energy, Penn West and Peyto, the ambiguity basically boils down to energy prices. Where oil and gas are at the end of 2010 will determine what cash flows they can generate. To date, ARC has been the most explicit, stating its future dividend policy will be “similar” to what it is now. But a dramatic increase or decrease in oil and gas by the end of the year would certainly change management’s calculus for all three companies.

Of course, that will still be true of these trusts after they convert. These will still be companies whose cash flows rise and fall with oil and gas prices, and their dividends will follow suit. I expect that to be a positive, which is one major reason I have strong buys on all three.

Provident Energy Trust (TSX: PVE-U, NYSE: PVX), too, is affected by energy prices, as profits follow “frac” spreads between refined products and raw commodities. More important, however, will be management’s ability to meet its cash flow targets as a pure midstream energy company focused on natural gas liquids. Again, I’m positive and recommend holding on to Provident Energy Trust, as well as shares of Pace Oil & Gas (TSX: PCE, OTC: MDOEF), at least for the time being.

As noted last month, IBI Income Fund has stated its intention to convert to a corporation and to pay a high distribution beyond that. The exact amount remains a mystery. But as noted above, second quarter earnings and management’s 2010 outlook are positive, which should mean more rather than less.

Finally, CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF) may have more for us on Aug. 12, when it’s slated to announce second-quarter numbers. The good news is in the wake of US health care legislation worries, the bar for it has been set extremely low, with the current yield at over 11 percent. We’ll know more in the next two weeks. But based on results for the first quarter, business is still solid. And that’s the key to my recommendation to hold onto CML Healthcare Income Fund units or buy up to USD12 if you haven’t yet.

The key with all of these is we just have to be patient. All are going to be strong corporations, just as they were robust trusts. As long as that’s the case, each is going to make us a lot of money in the coming months, no matter what initial post-conversion dividend is set. For a list of non-Portfolio companies tracked in How They Rate that have yet to announce post-conversion dividends, see Dividend Watch List.

• ARC Energy Trust (TSX: AET-U, OTC: AETUF)
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF)
• IBI Income Fund (TSX: IBG-U, OTC: IBIBF)
• Parkland Income Fund (TSX: PKI-U, OTC: PKIUF)
• Penn West Energy Trust (TSX: PWT-U, NYSE: PWE)
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)
• Provident Energy Trust (TSX: PVE-U, NYS: PVX)

Here’s the list of 17 CE Portfolio companies that have never once cut dividends. Of this list, CML, IBI and Parkland (see above) have yet to declare definitive post-conversion dividend policies. The rest have put 2011 risk behind them and are safe enough for even the most conservative investor. See the Portfolio table for current yields and prices.

• Ag Growth International (TSX: AFN, OTC: AGGZF)
• Artis REIT (TSX: AX-U, OTC: ARESF)
• Atlantic Power Corp (TSX: ATP, OTC: ATLIF)
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF)
• Brookfield Renewable Power Fund (TSX: BRC
• Canadian Apartment Properties REIT (TSX: CAR, OTC: CDPYF)
• Cineplex Galaxy Income Fund (TSX: CGX-U, OTC: CPXGF)
• CML Healthcare Income (TSX: CLC-U, OTC: CMHIF)
• Colabor Group (TSX: GCL, OTC: COLFF)
• IBI Income Fund (TSX: IBG-U, OTC: IBIBF)
• Just Energy Income Fund (TSX: JE-U, OTC: JUSTF)
• Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)
• Parkland Income Fund (TSX: PKI-U, OTC: PKIUF)
• Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)
• Vermilion Energy Trust (TSX: VET-U, OTC: VETMF)

Finally, as of this writing, we still haven’t heard from roughly half of Canadian Edge Portfolio companies regarding second quarter earnings. I’ll be reporting on them in Flash Alerts over the next couple weeks, with a complete wrapup in the September issue.

Remember, the key isn’t hitting a specific number or projection. Rather, it’s that the companies demonstrate they’re still moving in the right direction and are covering distributions well with cash flow.

As long as that’s the case, I’m comfortable holding them, no matter how volatile the market acts this summer and beyond. But if I see real signs of weakening, we’ll be out and looking for something else. Here’s when the others are expected to report.

Aggressive Holdings

• Ag Growth International (TSX: AFN, OTC: AGGZF)–August 11 (confirmed)
• Parkland Income Fund (TSX: PKI-U, OTC: PIKUF)–August 16
• Perpetual Energy (TSX: PMT, OTC: PMGYF)–August 6
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)–August 12
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)–August 11 (confirmed)
• Trinidad Drilling (TSX: TDG, OTC: TDGCF)–August 11 (confirmed)
• Vermilion Energy Trust (TSX: VET-U, OTC: VETMF)–August 6

Conservative Holdings

• Artis REIT (TSX: AX-U, OTC: ARESF)–August 11
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–August 11 (confirmed)
• Bird Construction (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 (confirmed)
• Davis + Henderson Income Fund (TSX: DHF-U, OTC: DHIFF)–August 10 (confirmed)
• Innergex Renewable Energy (TSX: INE, OTC: INGXF)–August 12 (confirmed)
• Just Energy Income Fund (TSX: JE-U, OTC: JUSTF–August 12 (confirmed)
• Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF)–August 9 (confirmed)