By any measure, it’s been an eventful five years for Canadian Edge readers. 2006 began full of optimism, as the Conservative Party unseated the long-reigning Liberals–and their plans to impose a 10 percent tax on income trusts.

The squashing of that proposal set off an unprecedented wave of corporations converting to income trusts. That was more than matched by a proliferation of closed-end mutual funds set up for the sole purpose of owning these high-yield vehicles. And despite the extension of the 15 percent withholding tax to IRAs, yield-hungry US investors poured in as well.

Oil prices were coming off a strong 2005, consolidating their gains in the USD60 to USD70 per barrel range. Natural gas, meanwhile, had backed off the previous year’s highs hit in the wake of Hurricane Katrina. But the clean fuel was still several times its early decade price, and sentiment was strong that another price spike was inevitable.

Finally, the Canadian dollar was relentlessly moving towards parity. And the S&P/Toronto Stock Exchange Income Trust Index (SPRTCM) was hitting new all-time highs on a regular basis, after more than doubling from mid-2004 levels.

Unfortunately, the seeds of a disastrous reversal were already being sown. After ramping up leverage and dividends in the wake of high natural gas prices, many producers were forced to slash distributions. The initial public offerings of so many new trusts–more than a few of them merely junk assets attached to an attractive yield–perversely made it more difficult for well-run trusts to raise capital, as all too many investors bought solely on the basis of a high yield and failed to notice differences in quality.

Finally, the rapid proliferation of trust conversions began to alarm the minority Conservative government, which worried corporate tax revenue would evaporate. Those concerns reached a fever pitch when first Telus (TSX: T, NYSE: TU) then BCE (TSX: BCE, NYSE: BCE) and finally EnCana (TSX: ECA, NYSE: ECA) all threatened to go trust unless Ottawa slammed the door.

The result was the Oct. 31, 2006, announcement by Finance Minister Jim Flaherty that all income trusts–with the exception of real estate investment trusts–would be taxed beginning in 2011. The decree also included an immediate tax on any corporations that converted to trusts, effectively stopping that trend cold. And it placed limits on equity issues by existing trusts, threatening any that more than doubled their equity bases with immediate taxation as well.

Thus was triggered the now-legendary early November selloff of Canadian income trusts, which took the SPRTCM from around 165 to a low of around 140 in roughly two weeks. The estimated CAD24 billion in lost market value traumatized many investors. But income trusts’ turmoil was only just beginning.

The selloff and new restrictions suddenly choked off trusts’ ability to raise equity. Meanwhile, credit conditions progressively tightened in 2007 and 2008, limiting access to debt capital as well. Some chose to be bought out, taking advantage of the private capital issuing wave. But by mid-2007 that avenue was closed as well.

The result was trusts were thrown back on their own resources, a challenge many found increasingly difficult to impossible. The mass wave of early conversions many analysts predicted never materialized. But dividend growth–once the primary catalyst for higher trust prices–ground to a halt, with even the stronger trusts limiting boosts to prepare for 2011 taxation.

The mid-2008 surge in energy prices provided a temporary respite to the stress test, at least for companies involved in producing oil and gas. By late year, however, trusts were caught up in a collapse far worse than the late 2006 selloff many investors have never recovered from psychologically. By the time the SPRTCM bottomed in early March 2009 it had lost nearly two-thirds of its value from the mid-2008 peak. And long-dreaded 2011 taxation was suddenly not so far off.

What happened then, of course, was the start of one of the greatest bull runs for any sector in market history. It soon became clear that Canada’s financial system was in far better shape than that of any other major country, thanks mainly to very conservative financial policies. Those also served corporate Canada well, as the credit market quickly unfroze.

The rebound in Asia couldn’t really help the price of North American natural gas, which is still fundamentally a local market. But it soon lifted the price of oil and other commodities, as developing China in particular resumed its torrid pace of imports. Canada found its export trade reviving quickly, even though the US–by far its biggest market–was still languishing.

Most bullish of all was the performance of income trusts as businesses. The 2008-09 debacle triggered an unprecedented wave of dividend cuts, particularly among energy producers and service companies. But many more companies proved they could take a hard punch and still get up. Dividend coverage ratios began to improve as cash flows rose. A handful even raised dividends.

The approach of 2011 posed a final challenge to income trusts, as they faced the decision of what to do with dividends when the new taxes kicked in. By mid-2010, however, it was apparent that those forecasting a day of doom on Jan. 1, 2011, were going to prove spectacularly wrong–and that the risk premium built into trusts’ prices since November 2006 was going to melt away, pushing prices much higher.

To be sure, many trusts did cut their dividends when they converted to corporations, some quite deeply. Many more, however, cut only as much as management expected the new taxes to bite. Meanwhile, a full third of those under Canadian Edge How They Rate coverage elected not to cut dividends at all. And as this month’s Feature Article shows, some decided not to convert, either.

The Big Surprise

In all it was a favorable ending to one of the toughest five years ever faced by a market sector, especially one where the primary attraction is dividend income. Now for the real surprise: Despite their trials and travails, the typical income trust outperformed US stocks by a factor of 2.5-to-1 over the past five years. In fact, trusts beat almost everything in the income investing universe as well, with the exception of US master limited partnerships.

The 20 current Canadian Edge Conservative Holdings shown below did twice as well, recording an average return of 108.9 percent. The 15 Aggressive Holdings, meanwhile, returned 89.1 percent, while the 3 Mutual Fund Alternatives were up 107 percent.

My listings below show two numbers. The number on the left is total return in US dollar terms for the five years ended Feb. 3, 2011. The second is the percentage change in each company’s distribution over that time.

Aggressive Holdings

• Ag Growth International–451.9%, 42.9%
• ARC Resources Ltd–66.4%, -50.0%
• Chemtrade Logistics Income Fund–201.8%,  -11.7%
• Daylight Energy Ltd–34.6%, -76.3%
• EnerCare Inc– -3.9%, -43.6%
• Enerplus Resources– -1.1%, -57.1%
• Newalta Corp– -22.5%, -86.9%
• Parkland Fuel–262.1%, 58.7%
• Penn West Petroleum–29.8%, -71.0%
• Perpetual Energy– -54.7%, -87.5%
• Peyto Exploration–65.4%, -50.0%
• PHX Energy Services–119.3%, -20.0%
• Provident Energy Ltd–60.7%, -62.5%
• Vermilion Energy–150.6%, 11.8%
• Yellow Media– -22.5%, -32.3%

Conservative Holdings

• AltaGas Ltd–34.3%, -31.3%
• Artis REIT–70%, 2.9%
• Atlantic Power Corp–189.1%, 6.2%
• Bird Construction–382.6%, 55.1%
• Brookfield Renewable Power Fund–83.6%, 4.9%
• Canadian Apartment Properties REIT–74.0%, 0.0%
• Cineplex Inc–180.6%, 9.6%
• CML Healthcare–37.7%, -20.3%
• Colabor Group–86.9%, 5.0%
• Davis + Henderson Income Corp–87.6%, -18.0%
• Extendicare REIT–83.7%, 319.9%
• IBI Group–133.0%, -1.9%
• Innergex Renewable Energy–83.6%, -11.9%
• Just Energy Group–68.2%, 32.8%
• Keyera Corp–169.2%, 27.3%
• Macquarie Power & Infrastructure–66.0%, -34.0%
• Northern Property REIT–117.5%, 16.5%
• Pembina Pipeline Corp–136.5%, 36.8%
• RioCan REIT–68.2%, 7.0%
• TransForce–26.2%, -71.2%

Mutual Fund Alternatives

• Blue Ribbon Income Fund–103.7%, -35.3%
• EnerVest Diversified Income Trust–43.3%, -52.4%
• Precious Metals & Mining Trust–174.0%, 147.3%

The total returns scored by the Portfolio Holdings are all the more impressive when you consider their dividend history. Of the Conservative Holdings, 12 actually increased dividends over the past five years. Seven of them, however, cut their distributions by an average of 27 percent, all as part of conversions to corporations.

The action in the commodity price/economically sensitive Aggressive Holdings was far more severe. In fact, only three of the 15 current holdings pay higher dividends now than they did five years ago. The rest have slashed payouts by an average of 54 percent from early 2006 levels.

Several of these did cut their distributions as part of converting to corporations. The majority of the cuts, however, were the result of falling commodity prices, particularly natural gas, over that time.

How did these companies manage such positive returns even when they were forced to cut dividends? A big part of the reason is that, whatever the cuts, most were still paying out a mountain of cash. That provided a baseline return even in the worst of times. The appreciation of the Canadian dollar from roughly 87 cents per US dollar to parity is another reason, though the loony also traded for as little as 78 US cents at one point.

The biggest reason for this five-year performance in the worst of times, however, is simply underlying businesses that may have bent at times but never broke. That these companies were facing adversity was a given. The key is they adapted to it, often turning it to their advantage, as my REITs did by using cash flow and access to capital to buy an unprecedented amount of property on the cheap in 2009 and 2010.

No matter how much they hedge, energy producers make more money when oil and gas prices are high and less when they’re low. And because they pay out aggressively, most had no choice but to cut dividends when prices fell in late 2008. Those focused most on producing natural gas suffered most, particularly Perpetual Energy (TSX: PMT, OTC: PMGYF), which was by far my worst holding over the past five years.

Even Perpetual, however, is still a sound enterprise, as last month’s conference call again made clear. The company has suffered mightily from weakening gas prices the past five years, as well as its historically high leverage. But it’s also continued to put pieces in place to remain a profitable enterprise, completing the construction of a gas storage system and expanding its capability to exploit higher priced natural gas liquids (NGL) and even light- and heavy-oil plays. All the while it’s continued to hedge output and control debt.

Was the stock a good investment the past five years? Obviously not. Would I still be holding it now if I’d had an inkling natural gas prices would be so weak? I sure hope not.

The point, however, is when you buy quality companies, you’re always still in the game. Even Perpetual has the potential to come back strong from its current woes, even to return to the double-digit price it held from late 2004 to late 2006. So do energy and environmental services company Newalta Corp (TSX: NAL, OTC: NWLTF) and print/directory company Yellow Media (TSX: YLO, OTC: YLWPF), both of which in retrospect were lousy holdings.

The proof is in the performance of the rest of the holdings. The future looked bleak for all of them at one time or another during the past five years. But when the chips were down management performed. Their businesses stayed strong, and as a result their stocks recovered with a vengeance, particularly those that managed to actually increase dividends despite the turmoil around them.

Cutting Losses

To be sure, the list of Portfolio Holdings in February 2006 looked a little different than it does now. As longtime readers know, I’m no trader, and I strongly advise income investors plan to hold anything they buy as long as it remains strong as a business.

The stress tests of the past five years I’ve described above, however, have provided ample opportunity for companies to prove their worth, or show their flaws. And I’ve been generally relentless about weeding out what I felt were weakening companies and replacing them with stronger ones.

The list of “Sold Positions” shown here is a case in point. These 23 companies represent what’s been removed from our holdings since Canadian Edge launched in summer 2004.

A half dozen were bought out, indicated by the word “merged.” Inter Pipeline LP (TSX: IPL-U, OTC: IPPLF) was basically removed following a testy conversation with a company representative, who basically threatened to withhold dividends paid to anyone the company suspected was a US investor.

Finally, Bell Aliant (TSX: BA, OTC: BLIAF) and Canfor Pulp Products (TSX: CFX, OTC: CFPUF) were reluctantly let loose at the end of 2010. The reason: announced plans to convert to corporations that included the obtuse notion that they had to cash out small US investors.

As it turned out, Canfor Pulp apparently relented at the last minute, following instead the 200-plus other converting trusts that simply swapped shares in the new corporations for units of the former trusts. Bell Aliant, on the other hand, inconceivably elected to go through with its plan, though it’s apparently worked well for US investors as they’ve essentially gotten cashed out within a stone’s throw of a two-year high.

The remaining 14 companies were sold for one reason: my view that their businesses were weakening, perhaps critically. They weren’t dead yet and there was still a chance for recovery. But I saw alternatives I liked better and took the opportunity to remove the risk they would falter.

As it turned out, not all of them cracked. Big Rock Brewery Income Fund (TSX: BR, OTC: BRBMF), for example, has continued to sell its range of beverages very profitably, finding markets for new ones. The company was forced to cut its distribution twice over the past five years. But even after conversion it will still pay more than 90 percent of what it did in early 2006. The result is the stock price has come back from the dead and is now back in range of its all-time high hit in late 2007. For more, see Dividend Watch List.

Avenex Energy Corp (TSX: AVF, OTC: AVNDF) has also managed a positive return since I sold it. In fact, I’ve increased my buy target to USD7, as the company has completed a successful transition to a corporation and has continued to pay a sustainable dividend in the neighborhood of 9 percent.

Others rating buys now from the list below include Algonquin Power & Utilities (TSX; AQN, OTC: AQUNF), a buy up to USD5 for growth as well as takeover possibilities. As the Feature Article discusses, there’s also appeal for speculators in former holding Arctic Glacier Income Fund (TSX: AG-U, OTC: AGUNF).

One of my worst calls in Canadian Edge was recommending a sale of GMP Capital (TSX: GMP, GMPXF) at almost its exact bottom in late 2008. After riding it all the way down in the financial crisis, I gave up on the company despite the fact that all of its key operations were holding their own amid the worst market conditions in 80 years.

I did avoid the pain of four months of dividend elimination in early 2009, as the company geared up for its conversion to a corporation. But whether it was a trust or a corporation didn’t bear on the fact that the company’s underlying business was still solid that year. And it didn’t take management long to prove it when market conditions began to improve. By abandoning the discipline of focusing on the health of underlying businesses, I shut myself off from the nearly 400 percent total return GMP has generated since.

For the most part, however, getting rid of these companies when their businesses weakened has been a very good move. That particularly goes for the eight that eliminated dividends entirely and have yet to restore them. Even those that have since shown some signs of life have far underperformed. There were and are today better places to put your money.

Sold Portfolio Positions

• Advantage Oil & Gas– -41.5%, -100.0%
• Algonquin Power & Utilities– -19.2%, -73.9%
• Arctic Glacier Income Fund– -79.8%, -100.0%
• Avenex Energy Corp–24.0%, -45.8%
• Bell Aliant–47.1%, -30.6%
• Big Rock Brewery Income Fund–60.0%, -9.1%
• Boralex Power Income Fund– -3.4%, merged
• Calpine Power Income Fund–48.3%, merged
• Canfor Pulp Products–244.6%, -2.8%
• Essential Energy Services– -59.5%, -100.0%
• GMP Capital–8.8%, -80.8%
• Harvest Energy Trust– -45.1%, merged
• Inter Pipeline LP—167.2%, 23.1%
• Noranda Income Fund– -21.8%, -100.0%
• Peak Energy Services– -93.2%, -100.0%
• Precision Drilling– -56.0%, -100.0%
• Primary Energy Recycling– -53.6%, -100.0%
• PrimeWest Energy Trust–2.9%, merged
• Summit REIT–19.8%, merged
• Superior Plus Corp–18.6%, -34.1%
• TGS North American REIT–23.3%, merged
• TimberWest Forest Corp– -50.5%, -100.0%
• Trinidad Drilling– -36.1%, -80.4%

If you’re interested in more detail on my rationale for selling these companies, please consult the archives on the Canadian Edge website. For my current advice on those that still exist as independent companies, see How They Rate.

The Next Five Years

That about wraps it up for the last five years. So what can we expect for the next five?

I see several reasons to be optimistic on the Northern Tiger, and by extension Canadian Edge Portfolio favorites. First, the US economy is slowly but surely getting back on its feet. That means revived demand for Canadian exports, particularly natural resources.

Everyone from producers to service companies and transporters are potential beneficiaries. So are companies with economic interests in producing areas, including power and communications companies, financials and real estate landlords. Stronger US growth is also good news for Canadian companies that have invested south of the border, such as High Yield of the Month IBI Group (TSX: IBG, OTC: IBIBF) and CML Healthcare (TSX: CLC, OTC: CMHIF).

Meanwhile, developing Asia’s demand for Canadian commodities continues to grow unabated. And while some fret that China in particular will have to cool off growth to control inflation, the country’s insatiable need for infrastructure to accommodate rapid urbanization didn’t slacken during the 2008-09 debacle, the worst in 80 years. It certainly won’t when the state takes measured steps to rein in prices.

By the end of the year we should be looking at oil prices well north of USD100 a barrel. And with Australia beset by record flooding in resource producing areas, global markets are set to be tight for a score of other key commodities as well, ranging from energy and metals to agriculturals, manna from heaven for Canadian companies.

The revival of the energy patch real estate market should be enough to launch Artis REIT (TSX: AX-U, OTC: ARESF) to a new all-time high by the end of the year. The company is only starting to enjoy the fruits of a flurry of acquisitions it made on both sides of the border the past couple years while its rivals floundered.

That includes three office properties acquired in the US for a total of USD52.9 million in deals closed last month. The company also announced the purchase of an industrial property in Calgary for CAD10.6 million and of a retail/office property in British Columbia for CAD48 million.

All should be immediately accretive to cash flow after they close, thanks to low cost financing and healthy occupancy levels. Yielding over 8 percent, Artis REIT is a solid buy up to USD14.

The future also looks very bright for Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF), which continues to add cash-generating assets in its three major operating areas: Oil sands transport, conventional energy midstream infrastructure and related energy marketing. The company last month purchased oil storage and terminating facilities in the Edmonton area for CAD57 million it will use to augment its presence in that liquids-rich region.

The completion of the Nipisi and Mitsue oil sands projects should give a mighty lift to cash flow and therefore dividend-paying power the next couple years. That will continue to lift the value of Pembina Pipeline Corp, a buy up to USD22 for those who don’t already own it.

I’m also increasingly bullish on financial services company Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF), as it continues to expand its services to Canada’s still very healthy banking system. As I’ve pointed out in the Dividend Watch List, Davis’ quoted yield does not reflect its plans to move to a quarterly payout, or its decision to reduce the annualized dividend rate to CAD1.20, announced nearly a year ago.

Even taking the cut into consideration, however, Davis is still paying out nearly 6 percent. And that post-conversion rate has been set very conservatively, meaning it’s likely to be increased going forward. Davis + Henderson Income Corp is a buy up to USD20.

I’ve also raised my buy target on TransForce (TSX; TFI, OTC: TFIFF) this month to USD14. The reason: Timely regulatory approval of its purchase of Dynamex (NSDQ: DDMX) in both the US and Canada, which should enable a close in the first quarter.

The deal both enhances the company’s profitability in Canada by eliminating a truck/transport competitor and provides an entry point for the US, and without burdening the balance sheet or diluting the equity base.

Those are the positives. There is, however, also one growing negative for the Canadian Edge How They Rate universe and in fact for the markets in general. That’s the rising expectations reflected in higher stock prices.

Investors pay more for stocks because they expect more from them. In this case, we’re coming off what were almost historically low expectations for Canadian companies, particularly the former income trusts–which were burdened for more than four years by overblown fears about 2011 taxation.

Based on some of the conversations I’ve had lately, some investors are still convinced there’s another shoe to drop on the conversion front. The fact that nine companies in the How They Rate universe are still posting pre-conversion dividend levels–and therefore inflated yields–demonstrates just how much confusion is still out there (see Dividend Watch List). So does some brokers’ apparently continuing inability to resolve issues emanating from the conversion process, such as entering proper symbols and dealing with changed rules on dividend withholding.

Canadian Currents once again addresses the questions of proper taxation, including the withholding issue. Meanwhile, here are the approximate corporate conversion dates for current CE Portfolio holdings. Dividends declared after these dates and paid into US IRA accounts should have been exempt from 15 percent Canadian withholding tax, though you’ll likely have to battle with your broker to reclaim anything improperly withheld.

Aggressive Holdings

• Ag Growth International–Jun. 4, 2009
• ARC Resources Ltd–Jan. 1, 2011
• Chemtrade Logistics Income Fund–No conversion planned
• Daylight Energy Ltd–May 7, 2010
• EnerCare Inc–Jan. 1, 2011
• Enerplus Corp–Jan. 1, 2011
• Newalta Corp–Jan. 2, 2009
• Parkland Fuel Corp–Jan. 1, 2011
• Penn West Petroleum Ltd–Jan. 1, 2011
• Perpetual Energy–Jul. 2, 2010
• Peyto Exploration & Development Corp–Jan. 1, 2011
• PHX Energy Services Corp–Jan. 1, 2011
• Provident Energy Ltd–Jan. 1, 2011
• Vermilion Energy–Sept. 1, 2010
• Yellow Media–Nov. 1, 2010

Conservative Holdings

• AltaGas Ltd–Jul. 2, 2010
• Artis REIT–No conversion planned
• Atlantic Power Corp–Nov. 9, 2009
• Bird Construction–Jan. 1, 2011
• Brookfield Renewable Power Fund–Not converted yet
• Canadian Apartment Properties REIT–No conversion planned
• Cineplex Inc–Jan. 1, 2011
• CML Healthcare—-Jan. 1, 2011
• Colabor Group–Oct. 7, 2009
• Davis + Henderson Income Corp–Jan. 1, 2011
• Extendicare REIT–No conversion planned
• IBI Group–Jan. 1, 2011
• Innergex Renewable Energy–Apr. 1, 2010
• Just Energy Group–Jan. 1, 2011
• Keyera Corp–Jan. 1, 2011
• Macquarie Power & Infrastructure–Jan. 1, 2011
• Northern Property REIT–No conversion planned
• Pembina Pipeline Corp–Oct. 1, 2010
• RioCan REIT–No conversion planned
• TransForce–May 14, 2008

The fact that there’s still so much confusion about these issues is a pretty good sign investor expectations for these stocks are still relatively low, at least compared to other dividend-paying companies. That means many stocks still have room to beat expectations if they continue to perform well as businesses–and thereby pick up some capital gains in addition to generous dividends.

On the other hand, a couple of my favorites have run up to levels that reflect pretty high expectations. They may beat them in the end. But until we see earnings numbers and dividend growth that really justify current price levels, they rate holds.

These include Keyera Corp (TSX: KEY, OTC: KEYUF) and Vermilion Energy (TSX: VET, OTC: VEMTF). Both have been huge winners in recent years and in recent months have blasted off to new highs. I like their business plans very much and see few obstacles to robust growth.

Vermilion, for example, has now won the approval of Irish regulators to build an onshore pipeline to serve the Corrib gas fields offshore. The find, which Vermilion holds an interest in, has the potential to supply up to 60 percent of Ireland’s natural gas needs. When it comes on stream–expected for 2012–it will boost Vermilion’s energy output at least 20 percent, giving a big lift to cash flow and almost certainly boosting dividends again.

Winning approval for this pipeline brings that startup date closer. But at a price nearly 20 percent above my last buy target (USD40), the stock more than reflects that promise. The business numbers will almost surely justify a price well beyond that for Vermilion eventually. The point is they don’t right now and until they do it will be easy for the company to disappoint in the near term, and bring its price down. Hold Vermilion Energy; hold Keyera Corp.

The Numbers: What to Watch

Over the next six weeks or so, Canadian Edge Portfolio companies announce their final numbers for fourth-quarter and full-year 2010. Given the demands of filing full-year numbers, this batch of results is only coming out little by little. And most will be reported only after most of the first quarter of 2011 is done.

That means most analysts and investors will be focused more on management statements during conference calls than on what numbers they see. I’ll be there listening is as well. But there will still be several critical metrics in the reports.

Last issue, I introduced a handful of changes to the Canadian Edge Safety Rating System. They’re repeated in the chart key section below the How They Rate table, as they are in every issue.

As before, I’m still rating companies on a scale of 0 (riskiest) to 6 (safest) based on six criteria intended to gauge sustainability of distributions. The rating is how many criteria are met. The more met the higher the rating and the safer the stock.

The payout ratio is the cornerstone of the system and the first number I’ll be searching for when figures are released. It’s basically the dividend as a percentage of profits available to pay dividends.

Fourth-quarter 2010 results mark the last reporting period in which newly converted income trusts–and those electing to remain trusts (see this month’s Feature Article)–will not be taxed, either as corporations or as SIFTs. SIFTs are “specialized investment flow-through” entities.

The lack of taxes is likely to keep payout ratios a bit lower than they will be in subsequent quarters, when taxes are assessed. The primary measurement of profitability, however, will be the same for most companies, whether they’ve converted to corporations or elected to remain income trusts. That’s distributable cash flow (DCF).

While conventional corporations generally peg dividends to headline earnings per share, the new breed of dividend-paying converted corporations are generally still targeting DCF when it comes to judging how much in dividends they can pay. Their ranks also include companies that haven’t converted, including REITs that are still exempt from taxes.

DCF per share isn’t a standard measure under Generally Acceptable Accounting Principles (GAAP). It is widely enough used now so that it does tend to be consistent across the companies that use it, though ensuring accuracy means making sure certain guidelines are adhered to.

Basically, DCF is revenue less all cash expenses, including what’s needed to maintain assets, commonly known as maintenance capital spending. It’s basically what companies have left over each quarter to pay dividends, grow the business and pay off debt.

I’ll be looking first to see how DCF compares to current dividend rates. Then I’ll be looking behind that number to the health of the individual operations, factoring out anything seasonal or due to one-time events.

The numbers will also allow us to take another look at companies’ debt, in terms of cost, overall leverage and near-term refinancing needs. I’ll be looking to see if key operations are still meeting the risk profile they have in the past, mainly how exposed to or protected against economic swings. And of course there’s the matter of dividend growth and how soon these numbers indicate we’ll return to it.

I report Safety Ratings based on these criteria in How They Rate. Changes from month to month are explained in In Brief, as are any changes in advice. Below I’ve listed the expected reporting dates for recommended companies’ fourth-quarter and full-year 2010 earnings numbers. Conference calls are typically held on the dates shown or the day after.

I’ll be reporting highlights on both in Flash Alerts over the next two months, with a full recap in the March and April regular issues of Canadian Edge. Expect to receive the first–rounding up companies reporting Feb. 9-10–the week after I return from the Orlando MoneyShow (Feb. 9-12).

Conservative Holdings

• AltaGas Ltd–Feb. 23 (estimate)
• Artis REIT–Mar. 2
• Atlantic Power Corp–Mar. 29 (estimate)
• Bird Construction–Mar. 11 (estimate)
• Brookfield Renewable Power Fund–Feb. 16
• Canadian Apartment Properties REIT–Feb. 22
• Cineplex Inc–Feb. 10
• CML Healthcare–Mar. 4 (estimate)
• Colabor Group–Feb. 24 (estimate)
• Davis + Henderson Income Corp–Mar. (estimate)
• Extendicare REIT–Mar. 16 (estimate)
• IBI Group–Mar. 17 (estimate)
• Innergex Renewable Energy–Mar. 23
• Just Energy Group–Feb. 10
• Keyera Corp–Feb. 18
• Macquarie Power & Infrastructure–Mar. 10
• Northern Property REIT–Mar. 9
• Pembina Pipeline Corp–Mar. 3 (estimate)
• RioCan REIT–Feb. 28
• TransForce–Mar. 2

Aggressive Holdings

• Ag Growth International–Mar. 14 (estimate)
• ARC Resources Ltd–Feb. 9 (estimate)
• Chemtrade Logistics Income Fund–Feb. 24 (estimate)
• Daylight Energy Ltd–Mar. 2 (estimate)
• EnerCare Inc–Mar. 1 (estimate)
• Enerplus Corp–Feb. 25
• Newalta Corp–Mar. 2 (estimate)
• Parkland Fuel Corp–Mar. 2 (estimate)
• Penn West Petroleum Ltd–Feb. 17
• Perpetual Energy–Mar. 8
• Peyto Exploration & Development Corp–Mar. 9
• PHX Energy Services–Mar. (estimate)
• Provident Energy Ltd–Mar. 9
• Vermilion Energy–Mar. 3 (estimate)
• Yellow Media–Feb. 10

Note that in addition to Safety Rating changes, earnings numbers have the potential to raise or lower buy targets. But until they’re reported, continue to hold off on purchases of anything trading above buy targets.