Last month, IBI Income Fund (TSX: IBG-U, OTC: IBIBF) and Parkland Income Fund (TSX: PKI-U, OTC: PKIUF) set their post-conversion dividend rates. That leaves Canfor Pulp Income Fund (TSX: CFX-U, OTC: CFPUF) as the only Canadian Edge Portfolio member with 2011 risk.

The company’s yield of 19 percent is pricing in a substantial distribution cut already, so the risk isn’t on that score. Rather, it lies with the bizarre details of its planned conversion to a corporation, particularly pertaining to US investors.

As I write in the Feature Article, trust conversions to date have basically been seamless. Investors have swapped their units for common shares, usually on a 1-for-1 basis. More than half of conversions–including those taking place Jan. 1–involve no change in dividends. Only one, Advantage Oil & Gas (TSX: AAV, NYSE: AAV) in early 2009, has been a taxable event. And even when US over the counter (OTC) symbols have been suspended or changed, trading has resumed expeditiously.

All parties, in other words, have made sure the conversion process is as painless as possible for investors–except, apparently, Canfor Pulp Income Fund. In the November Portfolio Update, I wrote in detail about the pulp and paper company’s “Information Circular” of March 16, which spells out the particulars for its conversion.

The 128-page document is easily the most complex of any conversion document filed. What’s truly astounding about it, however, is the assertion that US securities laws forbid US shareholders from participating in Canfor’s conversion from trust to corporation, unless they’re “qualified unitholders” under the 1940 Investment Act.

This is, of course, 180 degrees opposite to the approach taken by every other converting trust, including the scores that have successfully made the transition to corporations already.

Consequently, I’ve assumed no one would ever follow up on this nonsense, including what amounts to a threat by the company to seek out “non-registered unitholders who appear to the Fund to be US unitholders or to hold fund units on behalf of US unitholders” and cash them out if they don’t provide “Qualified US Unitholder Certification.”

Unfortunately, since that time I’ve become convinced that this is indeed what management plans to do. I’m convinced as ever of Canfor’s solid long-run prospects.

The company continues to benefit from its position as one of the lowest-cost pulp and paper producers and marketers in the world, as well as backing from forestry conglomerate Canfor Corp (TSX: CFP, OTC: CFPZF). Global markets have cooled slightly in the second half of 2010 but remain solid. And while the post-conversion dividend will be cut, at 19 percent that’s already well priced in and is likely to surprise on the upside.

On the other hand, getting cashed out at an uncertain price is not a reasonable prospect. Neither is the likelihood there will be confusion when it comes to ensuring cash winds up in the right accounts.

None of this will affect Canadian readers and those who are qualified US investors. If you’re in that category, hold onto Canfor Pulp Income Fund.

But if you’re a US investor who doesn’t meet the definition of “qualified buyer” under the 1940 Investment Act–the principal requirement is USD5 billion in investments–my advice is to sell Canfor Pulp Income Fund now. If you bought on my initial recommendation in October, you should have a modest profit that will cover trading costs and then some.

My view remains that this action by Canfor is motivated by a fear of lawsuits bordering on irrational phobia. Once the conversion process is complete, things will go back to normal, and US investors will be able to buy back in. In fact, the dividend at that point is likely to be set, which will eliminate even that uncertainty. For now, however, anyone in danger of being cashed out should steer clear.

Those in search of a less complicated but still aggressive commodity play to take Canfor’s place should take a look at new Aggressive Holding Precious Metals & Mining Trust (TSX: MMP-U, OTC: PMMTF). It’s a closed-end fund, holds mining stocks, yields north of 11 percent and pays dividends monthly.

The fund has closely tracked the price of gold bullion over its now four-year plus history and should continue to do so. That makes it a solid bet on a continuation of the commodity boom, as well as the risk of a US dollar debacle. For more, see High Yield of the Month.

As I point out in the Feature Article, it’s almost inevitable there will be some confusion on Jan. 3, when 54 income trusts-turned-corporations start trading. The greatest confusion will no doubt be sown by trusts that are simultaneously changing their names, such as Jazz Air Income Fund (TSX: JAZ-U, OTC: JAARF), which will become Chorus Aviation Inc (TSX: CHR/A).

Fortunately, the only CE Portfolio changing its moniker in a meaningful way has already done so: Yellow Media (TSX: YLO, OTC: YLWPF). The only change at the rest will be swapping out the words “Income Fund” and “Trust” for “Corporation” or “Group,” so there should be no problems finding them by name.

Unfortunately, as we’ve seen with every trust conversion so far, symbols are likely to be another matter entirely. Even companies that generally keep their names and trading symbols will be dropping the “-U” or “.UN” suffixes. New York Stock Exchange-listed symbols for companies like Enerplus Resources Fund (TSX: ERF-U, NYSE: ERF) won’t change.

OTC symbols, however, are likely to be at the very least initially suspended. And while the example of Yellow Media keeping its “YLWPF” OTC symbol through its early November conversion is very encouraging, at least some converters will wind up with a new OTC symbol, possibly as much as several days later.

I can’t say how much I hope I’m wrong on this. But however this comes out investors need to remember these issues are meaningless to returns on these stocks. That is, whether or not a price appears under a certain symbol on Jan. 3 or even the fourth or fifth, it won’t affect ownership or dividends. And any damage to share prices from the confusion will be quickly reversed as things are sorted out.

We’ll be posting new symbols as quickly as we can in How They Rate and the Portfolio tables. That will enable investors to keep up with price changes in US dollar terms, should anyone have to wait on OTC symbols to appear. But rest assured: The real question about 2011 and trust conversions–what dividends will be–has been answered.

After four years of worry and uncertainty, there’s no more risk on that score. In fact, once the dust settles from Jan. 3 and the 54 conversions taking place on that date, we’re going to see substantial upside, as yield seekers come back to what will be some of the highest-yielding corporations in the world.

See the Feature Article for more information on the 54 trusts converting Jan. 1. That includes who’s making a move and the changes, if any, in dividends and dividend frequency. I also highlight a basket of trusts that won’t converting to corporations on Jan. 1, including Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF) and Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF).

Now to the Business

The further Jan. 1, 2011 recedes into the rear view mirror next year, the more investors will focus on the yields and business prospects of individual companies. One result should be a continuation of the rally our favorites have enjoyed since March 2009, as corporate structure causes would-be buyers to lose their fear. That means higher valuations for the best companies’ stocks and solid capital gains for those who own them now.

Of course, buying into strong businesses was also the key to strong returns during trusts’ soon-to-be-passed limbo period–i.e., between the Halloween 2006 announcement of the trust tax and its implementation Jan. 1. It’s been the key to first surviving and then recovering from the historic market crash/credit crunch/recession of 2008-09. And it was the key to the biggest returns for trusts before the Halloween 2006 changed the game.

Since the foundation of Canadian Edge in summer 2004, scouring the universe for the best businesses has been our primary mission. The good news is–based on third-quarter numbers that build on prior results–the current lineup of holdings offers better potential for business growth than any before it. That means dividend growth and capital gains ahead as well as generous current income.

As has been the case the past several quarters, this time around I paid particular attention to two numbers. The first is companies’ debt maturities and refinancings through 2012, compared to their market capitalization.

This is basically a stress test of what companies could face were we to see an unlikely reprise of the credit crunch of 2008-09. The more refinancing a company must do the greater upside to future earnings if interest rates stay low. But large amounts relative to market cap also mean a greater risk of paying much higher financing costs, should conditions freeze up again or if currency/inflation woes push interest rates higher. I had been tracking maturities through 2011.

Again, despite the renewed turmoil in Europe, odds of another 2008 crunch are remote. Moreover, all of these companies survived that debacle and have used the past year of record low interest rates to refinance extensively.

Finally, Canadian banks not only have little real exposure to troubled Europe but they’re flush with cash, as generally solid third-quarter results for Big Five banks this far indicate. Bank of Nova Scotia (TSX: BNS, NYSE: BNS) today announced record results for fiscal 2010, trouncing expectations. Nonetheless, the point of a stress test is to be able to rule out a worst-case scenario for the companies you own. And that’s precisely what these results show, even taking into account debt due in 2012.

Conservative Holdings

• AltaGas Income Trust–5.8%
• Artis REIT–0.0%
• Atlantic Power Corp–0.0%
• Bell Aliant Regional Communications Income Fund–0.0%
• Bird Construction Income Fund–0.0%
• Brookfield Renewable Power Fund–12.7%
• Canadian Apartment Properties REIT–0.0%
• Cineplex Galaxy Income Fund–26.3%
• CML Healthcare Income Fund–0.0%
• Colabor Group–9.9%
• Davis + Henderson Income Fund–0.0%
• IBI Income Fund–27.4%
• Innergex Renewable Energy–0.0%
• Just Energy Income Fund–1.8%
• Keyera Facilities Income Fund–0.1%
• Macquarie Power & Infrastructure Income Fund–31.3%
• Northern Property REIT–0.0%
• Pembina Pipeline Corp–0.9%
• RioCan REIT–7.6%
• TransForce–0.0%

Aggressive Holdings

• Ag Growth International–0.0%
• ARC Energy Trust–0.0%
• Canfor Pulp Income Fund–0.0%
• Chemtrade Logistics Income Fund–17.8%
• Consumers’ Waterheater Income Fund–16.9%
• Daylight Energy–0.0%
• Enerplus Resources Fund–0.0%
• Newalta–23.2%
• Parkland Income Fund–42.4%
• Penn West Energy Trust–2.5%
• Perpetual Energy–12.9%
• Peyto Energy Trust–0.0%
• Phoenix Technology Income Fund–0.0%
• Provident Energy Trust–12.1%
• Vermilion Energy–0.0%
• Yellow Media–0.0%

Several of these companies face sizeable debt maturities by the end of 2012. None, however, are large enough to present significant difficulty for companies to pay them down or refinance, particularly with a more than two-year window for action. That includes Parkland Income Fund (TSX: PKI-U, OTC: PKIUF), which is still integrating its recent merger with Bluewave Energy.

Investors most worried about a credit crunch, however, have 20 picks to choose from with no debt maturities through 2012. No matter what happens, they’re covered. I’ll continue to update these figures month to month to reflect companies’ financings and refinancings.

Watch the Payout

The second key number is the payout ratio–the distribution as a percentage of recurring profits. The most widely used measure for taxable corporations’ profits is after-tax earnings per share, which has the advantage of being a standardized and therefore readily comparable measure defined under Generally Accepted Accounting Principles (GAAP).

For income trusts–as with US master limited partnerships–GAAP earnings per share (EPS) are a meaningless measure of profitability. Mainly, these companies intentionally minimize EPS to maximize available cash flow to pay dividends and grow the business.

Until Jan. 1, 2011, Canadian income trusts have been allowed to effectively shelter all of their income from taxes. As a result, their GAAP EPS is always extremely low or even negative. In fact, the only time income trust EPS has covered dividends has been in those rare instances when management has been unable to shelter income, for example, the profits from a hedge position for oil and gas producers.

Rather, the best measurement of income trust profitability–and the account on which management has based dividends–is a non-GAAP measurement called distributable cash flow (DCF). DCF is calculated by adding back all non-cash expenses to earnings, and subtracting out investment capital needed to maintain the business (maintenance capital expenditures). Since dividends are paid from cash, what’s left is a pure measurement of companies’ ability to pay.

One of the big questions concerning dividends in the post-trust era is which measurement of profits management will peg them to. Taxes that start in 2011 will come out of DCF, whether a company is still organized as a trust or converts to a corporation. But pegging the post-conversion dividends to EPS will almost surely produce a lower payout rate than keeping them tied to DCF.

What we’ve seen when companies have converted has been a decidedly mixed bag. Most of the early converters took the approach that dividends should be pegged to EPS, as typical corporations do. Increasingly, however, we’ve seen management elect to lean more toward DCF as a benchmark, thereby preserving higher payouts.

As a result, DCF remains the primary benchmark for most of the yield-producing Canadian Edge universe, as well as virtually all CE Portfolio companies. Most will probably start reporting EPS on some basis. More, however, will continue to focus investors on DCF and, more important, will keep dividends and dividend growth pegged to that number.

Consequently, that’s the number I’ll continue to focus on here, at least until management indicates EPS is indeed its most important benchmark. And that’s the number I’ll be presenting in How They Rate for most companies as well.

The good news is CE Portfolio picks reported generally solid third-quarter payout ratios based on DCF. That’s a very good sign as some of them head into conversions. And there’s no better indication that we can look forward to a return to dividend growth, once conversion adjustments are behind us. The numbers are reported in How They Rate. Note I’ve adjusted payout ratios to reflect any post-conversion dividend cuts.

Conservative Holdings

• AltaGas–65%
• Artis REIT–100%
• Atlantic Power Corp–65%
• Bell Aliant Regional Communications Income Fund–47%
• Bird Construction Income Fund–74%
• Brookfield Renewable Power–NMF
• Canadian Apartment Properties–75%
• Cineplex Galaxy Income Fund–39%
• CML Healthcare Income Fund–66%
• Colabor Group–89%
• Davis + Henderson Income Fund–80%
• IBI Income Fund–65%
• Innergex Renewable Energy–63%
• Just Energy Income Fund–79%
• Keyera Facilities Income Fund–60%
• Macquarie Power & Infrastructure Income Fund–156%
• Northern Property REIT–0.0%
• Pembina Pipeline Corp–100%
• RioCan REIT–92%
• TransForce–42%

Aggressive Holdings

• Ag Growth International–53%
• ARC Energy Trust–48%
• Canfor Pulp Income Fund–92%
• Chemtrade Logistics Income Fund–97%
• Consumers’ Waterheater Income Fund–58%
• Daylight Energy–45%
• Enerplus Resources Fund–47%
• Newalta–23.2%
• Parkland Income Fund–42.4%
• Penn West Energy Trust–47%
• Perpetual Energy–28%
• Peyto Energy Trust–38%
• Phoenix Technology Income Fund–28%
• Provident Energy Trust–82%
• Vermilion Energy–53%
• Yellow Media–57%

The first takeaway from this list is that most CE Portfolio companies are paying out low percentages of DCF relative to what they’re capable of. It is, however, important to put these numbers in perspective, i.e. how they compare to the kind of business these companies are involved in.

Oil and gas producers and other commodity-price dependent companies should have lower payout ratios, given the inherent variability of their earnings. For example, Canfor’s 92 percent payout ratio is far more aggressive and vulnerable than RioCan REIT’s (TSX: REI-U, OTC: RIOCF) 92 percent payout ratio.

It’s equally critical to take into account one-time factors, seasonal and otherwise, that have affected certain numbers. Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF) effectively paid out several times the cash flow it took in during the third quarter. That took away one point from it under the CE Safety Rating System.

In reality, however, it had little bearing on the hydro and wind power generator’s dividend paying ability. That’s because it was entirely the result of weak hydro flows that depressed output temporarily, and will be reversed in future quarters. Brookfield Renewable’s management has seen this many times in the past and is well prepared for it with cash reserves and business insurance, even if the current drought continues. The bottom line: It still pays a much safer dividend than, for example, any of my Aggressive Holdings.

The same is true of Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF). That company is carrying a high payout ratio because management is holding a high cash balance while it invests proceeds from an asset sale. Artis REIT’s (TSX: AX-U, OTC: ARESF) high payout ratio is also the result of high cash balances raised at extremely low rates, and management’s deliberate style re-investing them. Meanwhile, Pembina Pipeline Corp’s (TSX: PPL, OTC: PBNPF) cash flows are about to take off as major new projects are brought into operation in coming months. Until they are, however, it will have a high payout ratio, as costs are incurred and the company waits for cash inflow.

The bottom line is all four are still very solid companies, despite high third-quarter payout ratios. Of course, should high levels persist I’ll have to reconsider. But then, that’s the point of running through earnings each quarter–and ensuring that what you expect is what actually occurs.

By the Numbers

The most important number to come out of third-quarter earnings season was courtesy of Aggressive Holding Ag Growth International (TSX: AFN, OTC: AGGZF). That was the company’s 17.6 percent dividend increase, effective with the Dec. 30 payment.

Ag Growth completed its conversion to a corporation in June 2009. This payout boost is its first since then. It’s a powerful affirmation of the business strengths of this seller of grain handling equipment tied into the global commodity boom, and an indication of more to come.

It’s also a window into what we can expect from strong companies after they make the jump from trust to corporation. And the implications couldn’t be more bullish for CE Portfolio selections.

As for the rest of the Portfolio third-quarter numbers, I’ve reviewed them pretty thoroughly in Flash Alerts over the past month, as well as in the regular November issue. Colabor Group (TSX: GCL, OTC: COLFF) is on a slightly different reporting schedule and was highlighted in the October issue.

Below, I’ve indicated where these writeups are for each of the CE Portfolio picks, rather than repeat the same information. I have, however, included a brief outlook for each holding and reiteration of my buy target.

Note that all Flash Alerts and past articles of Canadian Edge–dating back to our first issue–can be accessed by subscribers at www.CanadianEdge.com. If you’re having trouble receiving any of this information, please contact our customer service department at 800-832-2330.

Conservative Holdings

AltaGas (TSX: ALA, OTC: ATGFF) posted solid third-quarter results, as earnings covered distributions comfortably. Management also reported solid progress on several new gas and power infrastructure projects that will add future cash flows and it executed low cost financing as well.

This company has already converted to a corporation and I expect to see dividend growth possibly as soon as next year as more projects come on stream. Buy AltaGas up to USD22. Earnings review: November Portfolio Update.

Artis REIT’s (TSX: AX-U, OTC: ARESF) aggressive financing has left it with large cash balances that depressed third-quarter per share totals. Operating metrics, however, were very strong, including rent growth and occupancy and the REIT continues to find low-risk properties that will boost future cash flows.

That’s what you want from a conservative property owner. Buy Artis REIT up to USD14. Earnings Review: Nov. 12 Flash Alert.

Atlantic Power Corp (TSX: ATP, NYSE: AT) is delivering on management’s promise to expand its cash-generating base of power assets. The payout ratio is expected to rise in coming quarters, as more cash is deployed but the new worst case date for dividend sustainability has been pushed into 2016—i.e. if there are no new investments and existing power contracts expire without renewal. Much more likely is another dividend increase. Buy Atlantic Power Corp up to USD14. Earnings Review: Nov. 12 Flash Alert.

Bell Aliant Regional Communications Income Fund’s (TSX: BA-U, OTC: BLIAF) traditional phone business continued to erode, but the pace slowed markedly in the third quarter and has likely peaked. Meanwhile, Bell continues to build out its fiber to the home network, which will be a major future cash generator. The company will reduce its dividend to an annualized rate of CD1.90 per year, paid monthly. This has been public information, however, since spring and will not affect the share price as it occurs. Buy Bell Aliant Regional Communications Income Fund up to USD27. Earnings Review: November Portfolio Update.

Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF) shocked some investors with lower than expected third quarter earnings, precipitating some wild volatility last month. But profits still covered the payout comfortably and the company reported solid backlog growth, as it prepares for a cut-less conversion to a corporation. The lower price is a good opportunity to buy Bird Construction Income Fund below my long-standing target of USD35. Earnings Review: Nov. 12 Flash Alert.

Brookfield Renewable Power Fund’s (TSX: BRC-U, OTC: BRPFF) payout ratio ballooned in the third quarter due to extremely low water flows. The company is used to it and continues to add to its portfolio of steady cash-generating wind and hydro facilities.

The delay in converting to a corporation is a sign of no tax liability in 2011 and will likely promote dividend growth. Buy Brookfield Renewable Power Fund up to USD20. Earnings Review: Nov. 12 Flash Alert.

Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF) turned in another quarter of rising occupancy rates, higher rents, low-cost financings and acquisitions of valuable assets for this owner of residential properties. Management’s policy on dividend growth remains conservative but there are no worries here. Buy Canadian Apartment Properties REIT up to USD17. Earnings Review: Nov. 12 Flash Alert.

Cineplex Galaxy Income Fund’s (TSX: CGX-U, OTC: CPXGF) recent strong earnings reports show plainly that this company can make a hefty profit even if movie fare is generally weak.

With a strong season expected in the fourth quarter, we should see even better numbers, setting the stage for dividend growth after the company’s cut-less conversion to a corporation. Buy Cineplex Galaxy Income Fund up to my new target of USD22. Earnings Review: Nov. 12 Flash Alert.

CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF) has eliminated its 2011 uncertainty, declaring a new monthly dividend rate of 7.548 cents Canadian per share annualized starting with the February payment. It’s also posted third quarter results indicating stabilization of the US operations, as well as growth in Canada. CML Healthcare Income Fund is a buy up to USD12. Earnings Review: Nov. 12 Flash Alert.

Davis + Henderson Income Fund (TSX: DHF-U, OTC: DHIFF) has publicized since spring a reduction in its dividend to an annualized rate of CD1.20 staring with the January payment. Business continues to grow rapidly and the new rate has been set conservatively, opening the door to growth. Buy Davis + Henderson Income Fund up to USD20. Earnings Review: November Portfolio Update.

IBI Income Fund (TSX: IBG-U, OTC: IBIBF) has eliminated 2011 uncertainty by cutting its distribution to a new monthly rate of 9.16 cents per share. Business is good with expansion on five continents as well as in the US. Buy IBI Income Fund up to USD15. Earnings Review: December Dividend Watch List, Nov. 12 Flash Alert.

Innergex Renewable Energy (TSX: INE, OTC: INGXF) continues to execute on its aggressive construction of wind and hydropower plants. Diversification paid off in the third quarter, as the company posted a low payout ratio despite weak hydro conditions in many parts of Canada.

The company has already converted to a corporation. Buy Innergex Renewable Energy up to USD10. Earnings Review: Nov. 12 Flash Alert.

Just Energy Income Fund (TSX: JE-U, OTC: JUSTF) posted its fastest customer growth ever, as well as solid gains in profitability. That’s the best possible sign as it prepares for a cut-less conversion to a corporation on Jan. 1. Buy Just Energy Income Fund up to USD15. Earnings Review: December High Yield of the Month.

Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF) continues to add midstream assets in the fastest-growing areas of Canada’s energy patch. Meanwhile, profit numbers and dividend coverage are strong as ever, as it prepares for a cut-less conversion to a corporation. The only problem for new investors is price, but Keyera Facilities Income Fund is a buy on dips to USD28 or lower. Earnings Review: November Portfolio Update.

Macquarie Power & Infrastructure Income Fund’s (TSX: MPT-U, OTC: MCQPF) third-quarter payout ratio is above 100 percent. But it should decline sharply over the next year as the company reinvests proceeds from the sale of its stake in LeisureWorld. The dividend is safe though unlikely to grow in the next couple years.

On track for a cut-less conversion to a corporation on Jan. 1, Macquarie Power & Infrastructure Income Fund is a buy up to USD8. Earnings Review: November Portfolio Update.

Northern Property REIT (TSX: NPR-U, OTC: NPRUF) will be exchanging investors’ units for staple shares, combining a portion of debt and equity into one high yielding security paying the same dividend the REIT does now. That was made necessary by the peculiarity of Canada’s new rules for REITs but it should be a seamless transition. Meanwhile, third quarter results were robust and we should see another dividend boost next year. Buy Northern Property REIT up to USD25. Earnings Review: Nov. 12 Flash Alert.

Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF) has already converted to a corporation while maintaining its dividend rate. Third quarter earnings were solid, with cash flow covering the payout despite the cost of completing two major new pipeline projects. These will boost cash flow considerably starting next year. Buy Pembina Pipeline Corp up to USD22. Earnings Review: November Portfolio Update.

RioCan REIT’s (TSX: REI-U, OTC: RIOCF) third-quarter payout ratio dropped again from prior quarters, as it continued to put its cash to work buying valuable properties in the US and Canada. Occupancy rates and rents moved higher as well.

The REIT meets all Canadian rules for 2011 and should resume dividend growth next year. Buy RioCan REIT up to USD23. Earnings Review: November High Yield of the Month.

TransForce’s (TSX: TFI, OTC: TFIFF) best measure of underlying strength during the recent recession was its ability to keep growing, even while maintaining its payout. Third-quarter earnings demonstrated that again and even showed some sign of improvement in the operating environment. A corporation since 2008, there’s no 2011 risk here. Buy TransForce up to USD12. Earnings Review: November Portfolio Update.

Aggressive Holdings

Ag Growth International’s (TSX: AFN, OTC: AGGZF) 17.6 percent dividend increase was solidly backed by its robust third quarter results. More encouraging, it’s finding new markets overseas to complement those in the US and Canada and fire up growth even further. The company converted to a corporation in 2009, so there’s no 2011 risk. The dividend boost has induced me to raise my buy target for Ag Growth International to USD45. Earnings Review: Nov. 12 Flash Alert.

ARC Energy Trust (TSX: AET-U, OTC: AETUF) will convert to a corporation on Jan. 1 without cutting its distribution, the legacy of a successful ramping up of natural gas production from shale.

That’s a formula that should continue to drive down costs and push up profits going forward, even if gas prices remain anemic. My buy target is going up to USD24 for ARC Energy Trust, a low-risk energy play. Earnings Review: November Feature Article.

Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF) won’t convert to a corporation next year, mainly because it will owe no taxes thanks to extensive operations outside of Canada.

Third-quarter results demonstrated the cash flow can cover the distribution even with the Beaumont plant down.

It’s still a cyclical play but the dividend has been set so conservatively it should be able to hold up through virtually anything, and fourth quarter results are expected to improve dramatically. Buy Chemtrade Logistics Income Fund up to USD13. Earnings Review: Nov. 12 Flash Alert.

Consumers’ Waterheater Income Fund (TSX: CWI-U, OTC: CSUWF), added last month to the Portfolio, followed up a series of positive announcements in the summer and autumn months with robust third-quarter earnings.

Revenue rose 7.7 percent and distributable cash flow surged 23.9 percent, as the company slowed attrition at the core waterheater rental business and even posted positive sales growth at the sub-metering division. The latter should really ramp up growth next year, as the company completes its conversion to a corporation and changes its name to EnerCare. That may involve a symbol change and we’ll keep you posted. In the meantime, Consumers’ Waterheater Income Fund is a buy up to USD6.50. Review: November High Yield of the Month.

Daylight Energy (TSX: DAY, OTC: DAYYF), like ARC Energy, has found the road to higher profits through increased shale production. It’s also made a push to boost liquids output, which should improve profit margins going forward. The company has already converted to a corporation. Buy Daylight Energy up to USD11. Earnings Review: November Feature Article.

Enerplus Resources Fund (TSX: ERF-U, NYSE: ERF), Canada’s oldest income trust, will convert to a corporation on Jan. 1, but without cutting its dividend. That’s made possible by very conservative financial policies and a wealth of prospects to increase low-cost output from shale, particularly in the Bakken trend. Buy Enerplus Resources Fund up to USD18. Earnings Review: Nov. 12 Flash Alert.

Newalta Corp (TSX: NAL, OTC: NWLTF), which provides clean-up and waste recycling services to Canadian industrial and energy concerns, may now be finally breaking out. Third-quarter earnings certainly justify a higher share price, as the company has continued to grow its business and post strong revenue and cash flow growth.

This one has a long way to go before it reclaims its lost heights. But that’s my expectation. Buy Newalta Corp up to USD10. Earnings Review: November Feature Article.

Parkland Income Fund (TSX: PKI-U, OTC: PKIUF) disappointed some with its third-quarter earnings announcement in mid-November then exceeded expectations when it set its post-conversion dividend two weeks later. The result is a company trading with a big yield and solid prospects for earnings and dividend growth beyond. Buy Parkland Income Fund up to USD13. Earnings and Dividend Review: Nov. 16 and Nov. 29 Flash Alerts.

Penn West Energy Trust (TSX: PWT-U, NYSE: PWE), Canada’s largest conventional energy trust, will convert to a corporation on Jan. 1. The current dividend rate already reflects a reduction made in advance of the change.

The company’s chief appeal is a huge reserve base and still sharply discounted share price to that value. It’s a play on energy prices paying a modest dividend. Buy Penn West Energy Trust up to USD22. Earnings Review: November Feature Article.

Perpetual Energy (TSX: PMT, OTC: PMGYF) is heavily leveraged to natural gas prices, and is suffering for it. Third-quarter earnings were off, even with much of company’s output hedged at twice current prices. And they’re set to fall further as the company locks in lower prices for the next few quarters.

I’m sticking with it as a leveraged bet, but only those willing to live with the impact of lower gas prices should follow suit. The bright side is the company has already been through its corporation conversion, ironically without cutting its dividend at that time. Buy Perpetual Energy up to USD6 if you meet that description, and only in measure. Earnings Review: December Dividend Watch List, Nov. 9 Flash Alert.

Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF), like ARC and Daylight, has found the joys of ramping up shale output, thereby cutting costs and offsetting today’s low prices. The company will convert to a corporation and cut its monthly distribution in half to CAD0.06 per share when it does, beginning with the February payment. It’s worth owning for its extremely low cost production and reserve base, which give it leverage to higher energy prices and protects it from today’s weakness. Buy Peyto Energy Trust up to USD16. Earnings Review: Nov. 9 Flash Alert.

Phoenix Technology Income Fund (TSX: PHX-U, OTC: PHXHF) saw a huge surge in revenues and cash flow in the third quarter. The focus on shale was the biggest catalyst, and continues to put the company ahead of rivals like Precision Drilling (TSX: PD, NYSE: PDS). The yield’s not as high as my other picks but the upside is huge as this industry recovers. Buy Phoenix Technology Income Fund up to USD11. Earnings Review: November Feature Article.

Provident Energy Trust (TSX: PVE-U, NYSE: PVX) is a pure midstream energy company focused on natural gas liquids after spinning off its energy production operations as Pace Oil & Gas (TSX: PCE, OTC: MDOEF). For more on Pace, see How They Rate.

As for Provident, it will cut monthly distributions to an annualized rate of CAD0.54 per share when it converts to a corporation on Jan. 1. After that, there are numerous opportunities to grow the business, including a potential takeover. Buy Provident Energy Trust up to USD8. Earnings Review: Nov. 12 Flash Alert.

Vermilion Energy (TSX: VET, OTC: VEMTF) converted to a corporation back in September without cutting its distribution. Output continues to grow on three continents, with a major upward push expected when the Corrib field starts producing off the Irish coast.

The company held its dividend through the crash of 2008 in energy prices, a key indication of strength and why it’s a great buy for even the most conservative investors. Buy Vermilion Energy up to USD40. Earnings Review: November Feature Article.

Yellow Media (TSX: YLO, OTC: YLWPF) converted to a corporation in November but elected to wait on a dividend cut until January, when the payout will be reduced to 5.42 cents Canadian a month.