The four full years of grace following Canadian Finance Minister Jim Flaherty’s Oct. 31, 2006, announcement of the Tax Fairness Plan–a night described widely as the “Halloween Massacre,” the government’s move a “death knell” for Canadian dividend-payers–actually worked out pretty well in the aggregate, for the companies that have survived and converted, and those that continue as trusts, as well as for investors who rode out the temporary crisis.

What was once a universe of more than 250-plus income trusts, income funds, royalty trusts and REITs has been reduced to about a few dozen mostly real estate investment trusts. The process of getting there involved some of the worst financial, economic and market conditions in more than 80 years, a fact that may have obscured the magnitude of the damage done in the fall of 2006.

At the same time the strength of the underlying businesses supporting at least the trusts included in the Canadian Edge Portfolio allowed them to sustain and in some cases grow dividends through and following the Great Recession. We documented the performance history of the original CE Portfolio, from the founding of the advisory in July 2004 through September 2011, in last week’s issue.

What’s revealed is a low-turnover, high-total-return vehicle that demonstrates the logic of buy-and-hold for self-directed individual investors. The average total return from Jul. 30, 2004, through Sept. 30, 2011, for the original CE Portfolio is 175 percent. During that time the S&P 500 generated a total return of 18.9 percent in US dollar terms, the S&P/Toronto Stock Exchange Composite Index 111.1 percent and the S&P/TSX Income Trust Index (SPRTCM) 212.8 percent for US dollar-based investors.

By the middle of June 2008 the SPRTCM had regained much of the value that Mr. Flaherty had torched 19 months earlier. Though 2006 was a double-digit down year for the income trust index on price-only basis, dividends helped US investors realize a loss of just 3.1 percent. In 2007 the real turnaround of the Flaherty-induced low began in earnest, as the SPRTCM generated a 25.3 percent US dollar total return. The price of crude oil, tightly linked to the Canadian currency, was in the midst of a run that would eventually take it north of USD140 per barrel.

But 2008 was ultimately a killer for assets with any sort of risk attached, which means anything other than US Treasury paper. Lehman Brothers’ September 2008 collapse brought on a global crisis that made the Halloween Massacre look like a stubbed toe.

The SPRTCM (we pronounce it “the sport-com”) shed 33.7 percent in local price-only terms, 26.1 percent including dividends. Factoring in the impact of the depreciation of the Canadian dollar versus the US dollar over the course of the year, the index was off 46.1 percent in price-only terms. Dividends cut the loss to 39.8 percent for US investors. The loonie fell nearly 20 percent against the US dollar, from approximately parity with the buck at the beginning of the year to USD0.82 at the end.

Again, however, dividend-paying income trusts, represented by the SPRTCM, were at the forefront of the rebound. In 2009 the trust index gained 29.5 percent up in Canadian price-only terms and generated a 42.2 percent total return. For US investors, benefitting from a sharp appreciation the loonie from about USD0.82 to start the year to USD0.95 to end it, the SPRTCM was up 49.3 percent in price terms, 63.9 percent including dividends. Last year was another good one, as the loonie ended 2010 at parity with the buck, and US investors saw a total return of 34.5 percent.

In 2011 the SPRTCM is up 9.6 percent up in Canadian price terms while generating a total return of 14.5 percent. The figures are 7.4 percent and 12.2 percent, respectively, in US dollar terms. This performance is for a much smaller group of stocks–just 18, comprised largely of Canadian real estate investment trusts (REIT), which are largely immune from the tax on specified investment flow-through (SIFT) entities, as well as some straggler trusts that have simply yet to convert.

Nevertheless,  it illustrates the stabilizing impact that dividends can have on overall portfolio performance, as the SPRTCM beats the Standard & Poor’s/Toronto Stock Exchange Composite Index as well as the S&P 500 in 2011 in both Canadian and US dollar terms. Day-to-day experience tells us that we can’t control stock prices. But we can predict, with relative certainty, dividends.

Keystone XL

Let’s just get the disclaimer out of the way right here at the top: Robert Jones is vice president of the Keystone Pipeline System. He is most definitely an interested party in this debate over TransCanada Corp’s (TSX: TRP, NYSE: TRP) proposed CAD7 billion, 1,700-mile Keystone XL project.

But his guest editorial in the Lincoln, Neb., Journal Star raises a crucial point about complex processes and the way public opinion can be swayed by even experts who don’t possess facts. In addition to pointing out that Keystone XL has been subject to “by far the most exhaustive and detailed review ever conducted of a crude oil pipeline in the United States,” in his response to a prior editorial opposing the pipeline extension Mr. Jones alerts us to the fact that legal experts consulted by the previous piece’s authors have no grasp of the federal review process brought into question.

A Tulane law professor misconstrued the incentive structure for a company with a discrete set of skills in this context, Cardno ENTRIX, at the same time ignoring the fact that the process that led to the company’s selection by TransCanada is standard operating procedure at the Federal Energy Regulatory Commission (FERC), which would have review authority were Keystone XL a domestic as opposed to an international (i.e., it crosses the US-Canada border) pipeline.

This issue is now the basis for a renewed State Department review of project prompted by a letter from three Democratic Senators.

The BoC

The Bank of Canada–run by the guy who did the brainwork behind Finance Minster Flaherty’s Tax Fairness Plan, former Finance Dept backroom wizard and current BoC Governor Mark Carney–stuck to its 1 percent target overnight interest rate after its regular policy meeting this week.

The BoC did, however, significantly revise its view on the global economic situation and how it could impact the domestic economy, as “several downside risks” identified in the central bank’s mid-summer Monetary Policy Report “have been realized.”

The BoC now expects Europe to slide into a short recession, while it continues to point out the drag on US growth a push to austerity alongside consumer deleveraging could have. The BoC also sees growth in emerging Asia moderating to a “sustainable” pace, which, too, will contribute to headwinds for Canada. Because the Canadian economy won’t return to full capacity until 2013, inflationary pressures are likely to remain muted.

The BoC will release its fall Monetary Policy Report on Oct. 26. Its next interest rate decision will come Dec. 6.

The Roundup

Bank of Nova Scotia (TSX: BNS, NYSE: BNS), the most geographically diverse among Canada’s Big Six banks, announced a USD1 billion deal to buy 51 percent of Colombia-based Banco Colpatria, one of the country’s leading financial groups. Terms are USD500 million in cash and 10 million Scotiabank shares. Banco Colpatria has assets of USD6.2 billion, deposits of USD4.2 billion and a banking network of 175 branches. The Banco Colpatria acquisition marks the No. 3 Canadian bank’s entry into the retail banking space in Colombia, where it already has small wholesale operations and should provide it with several cross-selling opportunities.

The move is a continuation of Scotiabank’s long-term strategy of expansion via high-growth markets, building up its operations in Latin America in particular. Colombian gross domestic product growth in the second quarter was 5.2 percent year over year, 2.1 percent quarter over quarter, due in part to mining and oil operations.

Copatria’s strengths are in mortgage lending and credit card operations. Although it’s small relative to Scotiabank’s overall asset base of more than CAD556 billion, the deal is forecast to be accretive in 2012. This will help alleviate pressure the acquisition will place on Scotiabank’s efforts to comply with Basel III capital requirements. Bank of Nova Scotia is a buy under USD60.

Following are announced and estimated third-quarter reporting dates for Canadian Edge Portfolio Holdings. We’ve linked to articles and analyses for companies that have already reported, a list that to this point is limited to Colabor Group Inc (TSX: GCL, OTC: COLFF), which reported solid numbers Oct. 18.

Conservative Holding AltaGas Ltd (TSX: ALA, OTC: ATGFF) and Aggressive Holding Acadian Timber Corp (TSX: ADN, OTC: ACAZF) reveal results Thursday, Oct. 27. AltaGas will release its numbers and hold a conference call at 11 am ET. Acadian Timber will release its third-quarter report after the market closes on Thursday, and management will host a call to discuss same on Friday, Oct. 28, at 12 noon ET.

AltaGas, among the safest bets in the Canadian Edge coverage universe, misses a perfect “6” score on the CE Safety Rating System only because a conservative management team trimmed its payout from CAD0.18 per unit per month to CAD0.11 per share per month upon the company’s conversion from income trust to corporation in 2010.

The question now is whether a murky economic outlook will provide the rationale for further delay in a dividend increase, the last of which occurred more than three years ago. The company has little in the way of operating risk, and it recently closed a CAD200 million medium-term note offering maturing Jan. 17, 2019, at an interest rate of just 4.55 percent, removing any refinancing uncertainty for almost a decade.

Management has indicated in recent public comments that dividend growth is in the offing, with CEO David Cornhill identifying a steady stream of projects capable of funding “modest” growth until 2014 and the opening of the 195 megawatt Forrest Kerr hydroelectric facility for “acceleration” as part of the company’s “basic strategy” of “balanced growth and growth in yield.”

In late September AltaGas reached an agreement with the Tahltan Central Council that will facilitate construction of two run-of-river hydroelectric projects adjacent to Forrest Kerr, one at McLymont Creek now scheduled to come on line in 2015, the other at Volcano Creek set to go by 2016.

Collectively the Northwest Projects will cost CAD1 billion. They’ll be built entirely within Tahltan Nation lands, with enough capacity to provide electricity to 95,000 homes in British Columbia. The plants will also offset more than 780,000 metric tons of greenhouse gases on an annual basis.

We’ll hold off raising the buy-under price on this one until management provides more detail on dividend increases, or an actual dividend increase. Until then, AltaGas is a buy whenever it trades under USD26.

As for Acadian Timber, we’ll be looking for sequential improvement from the second quarter to the third, as seasonal factors adjust in its favor. Acadian is fundamentally different from AltaGas in that commodity prices directly impact its fortunes. But management has insisted the company is set to withstand whatever pressures a weakening economy may exert on the payout.

Acadian Timber, with the continued backing of Brookfield Asset Management (TSX: BAM/A, NYSE: BAM), is well priced for the risks it faces. Now yielding 10 percent, it’s a buy under USD13.

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–Oct. 27 (confirmed)
• Artis REIT (TSX: AX-U, OTC: ARESF)–Nov. 8 (confirmed)
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–Nov. 11 (confirmed)
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–Nov. 8 (estimate)
• Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPUF)–Nov. 9 (confirmed)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–Nov. 7 (confirmed)
• Capstone Infrastructure Corp (TSX: CSE, OTC: MCQPF)–Nov. 14 (confirmed)
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–Nov. 10 (confirmed)
• Colabor Inc (TSX: GCL, OTC: COLFF)–Oct. 18 Flash Alert
• Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–Nov. 8 (confirmed)
• Extendicare REIT (TSX: EXE-U, OTC: EXETF)–Nov. 8 (confirmed)
• IBI Group Inc (TSX: IBG, OTC: IBIBF)–Nov. 10 (confirmed)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–Nov. 8 (estimate)
• Just Energy Group Inc (TSX: JE, OTC: JUSTF)–Nov. 9 (estimate)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–Nov. 1 (confirmed)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–Nov. 8 (confirmed)
• Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF)–Nov. 9 (confirmed)
• Provident Energy Ltd (TSX: PVE, NYSE: PVX)–Nov. 9 (confirmed)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–Nov. 7 (confirmed)
• TransForce Inc (TSX: TFI, OTC: TFIFF)–Nov. 1 (confirmed)

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–Oct. 27 (confirmed)
• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–Nov. 14 (confirmed)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–Nov. 1 (estimate)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)– Nov. 10 (estimate)
• Daylight Energy Ltd (TSX: DAY, OTC: DAYYF)–Nov. 3 (estimate)
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–Nov. 7 (confirmed)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–Nov. 10 (confirmed)
• Newalta Corp (TSX: NAL, OTC: NWLTF)–Nov. 4 (estimate)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–Nov. 11 (estimate)
• Penn West Petroleum Ltd (TSX: PWT, NYSE: PWE)–Nov. 3 (estimate)
• Perpetual Energy Inc (TSX: PMT, OTC: PMGYF)–Nov. 8 (estimate)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–Nov. 9 (estimate)
• PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–Nov. 3 (estimate)
• Student Transportation Inc (TSX: STB, OTC: STUXF)–Nov. 11 (estimate)
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–Nov. 4 (estimate)