Conservative financial and operating policies protected the fortunes of Canadian Edge Portfolio Holdings in the first quarter of 2012. And they’re likely to be even more important the rest of the year, should Europe’s recession spill over to these shores.

Some companies have continued to execute on strategies that are increasing profits and firing up dividend growth, for example Bird Construction Inc’s (TSX: BDT, OTC: BIRDF). As I pointed out in the May Feature Article, however, the fallout from the crash in North American natural gas prices has yet to wreak its full havoc.

Growth in Canada is solid, and US exposure is paying off for many companies. But still elevated unemployment levels and economic insecurity–even in Canada–are curtailing consumer and business spending much more than in past economic recoveries.

That’s heightened competition and compressed margins for other companies, including Aggressive Holding Colabor Group Inc (TSX: GCL, OTC: COLFF), whose results I featured in the May Portfolio Update. Acadian Timber Corp (TSX: ADN, OTC: ACAZF) is still dealing with sluggish demand for forestry products in the US, even as it handles labor pressures.

The good news is all 35 Canadian Edge Portfolio Holdings produced results that supported their current level of dividends. All of them continued to strengthen their balance sheets and kept plans for long-term growth on target.

That includes Colabor, whose goal is to profitably consolidate the food and related products distribution industry from its strong position in Eastern Canada.

The bad news is these results are also a pretty good reason to expect management will keep it conservative when it comes to dividends. That means lesser increases for some and less frequent bumps for others. It also means companies that have yet to return to dividend growth are likely to delay any such move, at least until results improve sufficiently.

Some stocks seem to have taken a hit on the probability dividend increases will be delayed. That appears to be what happened to IBI Group Inc (TSX: IBG, OTC: IBIBF), whose prospects I discuss below. My advice for anyone who owns it is to stick with it. There was nothing in the company’s report to suggest dividend growth is anything but inevitable. And when it does come, capital gains will follow. Here’s the roundup of the numbers for the final six Canadian Edge Portfolio companies to report them.

Bird Construction Inc (TSX: BDT, OTC: BIRDF) announced CAD235 million in new construction contract awards last week. The company continued its successful foray into oil sands projects by landing the Early Works Civil Program at the Voyageur Upgrader Project north of Fort McMurray, Alberta.

This deal will require Bird to build earthworks, concrete foundations, underground piping and related facilities with a target completion date of spring 2013.

With Suncor Energy Inc (TSX: SU, NYSE: SU) and Total SA (France: FP, NYSE: TOT) as joint owners, there’s no risk of non-payment and every indication of more business to come. The same is true of a contract in Newfoundland with Vale SA’s (Brazil: VALE5, NYSE: VALE) Inco unit to build a residue storage area and related dams at the company’s nickel processing plant. That project is expected to come on stream in late 2012.

The company also won a project to build residential housing at St. Francis Xavier University, and a deal to expand and renovate a major Walmart (NYSE: WMT) store in Winnipeg by early 2013.

The upshot is record backlog of CAD1.1659 billion as of the end of the first quarter is set to go higher still. This is the latest vindication of the company’s decision last year to buy HJ O’Connell, a deal that transformed Bird’s fortunes overnight and lifted it to a level of profitability not seen since prior to the 2008-09 crash.

First-quarter revenue surged 72.1 percent, lifting net income by 56.1 percent. That backed up the 9 percent boost in the March distribution with the promise of much higher profits and margins. The payout ratio based on earnings per share (EPS) rose to 105.9 percent. Coverage was much higher based on cash flow, and the EPS ratio is likely to come down in seasonally stronger quarters.

According to CEO Tim Talbott, “Results (were) in line with management expectations for the quarter.” Encouragingly, he also noted, “We are seeing some signs of a market recovery where Bird operates” and that the company is “on track to improve results from last year.”

That’s quite bullish, particularly given the generally more difficult macro environment. Buy Bird Construction on dips to 14.

EnerCare Inc’s (TSX: ECI, OTC: CSUWF) submetering division—which helps landlords and building owners monitor energy and water usage–had another solid quarter, with revenue picking up 14 percent. Management also had success at its waterheater rental division, pushing through a 2.75 percent rate increase and instituting several cost-cutting measures that will improve margins later in the year.

EnerCare’s overall revenue growth of 3 percent and flat cash flows were also in line with management expectations. And the payout ratio based on distributable cash flow was again quite manageable at 61 percent.

Interest expense on debt was reduced slightly and should go lower again later this year, as the company looks to refinance its 6.75 percent senior notes maturing Apr. 30, 2014, and a series of 5.25 percent note coming due Mar. 15, 2013. Both coupons are well above yields to maturity on the company’s longer-dated debt.

EnerCare will likely have to cut costs to sustain margins and grow dividends the rest of the year. Management still views the expiration of restrictions on waterheater services marketing in Ontario as positive. And there’s also the possibility of boosting growth through acquisitions.

Customer attrition did rise slightly in the first quarter, very likely as a reaction to the rent increases. There’s also the growing possibility that the province of Ontario will rescind planned decreases in the corporate tax rate due to budget problems. The general rate is currently slated to fall from 11.5 percent to 11 percent on Jul. 1, 2012, with a further drop in 10 percent on July 1, 2013.

Legislation has yet to be officially proposed, or “tabled,” and the plan would be to cut the rates once the provincial budget is balanced. Nonetheless, management is currently building into its plans the likelihood that tax cuts will be delayed.

Given the cushion the low payout ratio provides and the opportunities to cut costs this year, none of these challenges pose a threat to EnerCare’s current dividend. Nor are they likely to derail what appears to be the board’s policy of consistent annual dividend increases.

Management, however, is likely to keep things conservative, meaning less dividend growth than might otherwise be the case. Consequently, I’m not raising my buy target on the stock at this time. EnerCare is a buy up to USD10 for those who don’t already own it.

IBI Group Inc (TSX: IBG, OTC: IBIBF) shares took a wicked hit after the company announced its first-quarter earnings. The reason: Numbers showed a potential slowing of momentum in the company’s plans to boost profit margins, which in turn makes dividend growth this year that much less likely.

That was combined with the announcement IBI would be issuing 2.7 million shares of stock to fund growth and pay down debt.

Before the earnings release investors seemed to be pricing in the likelihood of a boost. And to be sure, there were several promising signs in the first-quarter numbers. One was a 4.9 percent increase in adjusted net earnings per share to CAD0.2423.

IBI’s revenue surged 11.7 percent, pushing up cash flow by 6.1 percent. Distributable cash flow rose another 8.6 percent, and the payout ratio, though higher than the 84.1 percent of a year earlier, still came in at a solid 89 percent.

Backlog, which measures revenue from contracts signed and in progress, exceeded 10 months of revenue, a new company record as its global network of partners continue to secure lucrative deals everywhere they operate.

On the other hand, margins as measured by cash flow to revenue fell to 13.1 percent from 13.8 percent a year ago. The main reason was a CAD2 million revenue shortfall from three factors: a UK transportation project that was temporarily delayed by permitting; a major infrastructure project in California stalled by bonding issues; and work in China’s housing market that was affected by softening conditions there.

That loss of revenue went right down to the bottom line. The good news is the UK project is now underway, and the company has been able to replace the work in China by focusing on stronger sectors such as retail and offices. California is still a question mark, but the company has noted very robust conditions for growth elsewhere on the West Coast of the US that are more than picking up the slack.

Clearly, the company isn’t having trouble getting orders, with backlog at its highest level ever. IBI is also now large enough to take the lead on a growing number of projects, subcontracting work to others, which provides a great deal more control over revenue.

Organic revenue growth, which excludes the impact of acquisitions, of 5.1 percent year over year is still below levels of past years, reflecting the weaker global environment. The company is still dependent on the public sector for 69 percent of contracts, as major projects in the private sector remain sluggish.

But management maintains it’s still on track to meet targets for this year and going forward. And Chairman Phil Beinhaker notes the company is “in close discussion” with four or five companies for potential acquisitions, with expectation of “some results towards the later part of the second quarter and on into the third.”

That leaves one other major challenge: reducing the time needed to collect on contract billings. These reached a peak of 195 days in the second quarter of 2010, sending IBI’s payout ratio soaring and threatening the dividend. Management maintained the payout at that time on a now vindicated strategy of closing the gap, narrowing collection times to just 142 days in the first quarter.

IBI’s goal is to eventually reduce the time to 115 days, which should become easier as it takes the lead role on more and more of its projects and therefore becomes first in line to be paid. That would take the payout ratio down toward management’s target of 60 percent to 65 percent, which it’s pledged to achieve by raising earnings and not cutting the payout.

Unfortunately, that goal seemed to suffer a setback in the first quarter. So did the related metric of working capital tied up in net fee billings, which rose to 178 days from 173 days in the fourth quarter. That was much better than the 195 days in mid-2010. But it still leaves the company far from its goal of achieving greater efficiency and therefore enhanced profitability.

The good news is that any disappointment on this front is more than priced in after the stock’s slide this week. The company’s 5,500-plus current projects globally are solid, with 60 percent of backlog actually in its home country of Canada. Another 24 percent of projects are in the US, where the company is seeing solid growth this year. Operations in Europe are focused mainly on the UK and Eastern Europe and in less economically sensitive areas such as transportation, health and education.

Total exposure to Greece is 15 employees involved in work on toll roads. The company already has plans to redeploy them should that become necessary. But in the meantime, there’s no real risk from that quarter. The company also has little debt and immense flexibility to adjust costs to available revenue.

Overall, Mr. Beinhaker believes IBI is on track to “more than fulfill the guidance that we provided for organic growth for this year” as areas of slippage are made up for elsewhere. The company is also sticking to a target of exit 2012 cash flow-to-revenue margins of 15 percent, a level that would almost surely provide profits to fund dividend growth.

Bay Street is still bullish, with seven analysts rating the stock a “buy,” three calling it a “hold” and only one recommending “sell.”

I’m sticking with IBI and my buy target of USD15.

Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF) continues to move ahead on its portfolio of wind and hydroelectric projects, with output fully contracted at completion.

Power generation overall rose 36 percent to 327,508 megawatt hours, largely thanks to new wind power plants coming on stream at Montagne Seche and Gros-Morne in Quebec.

First-quarter revenue surged 38.1 percent, pushing up cash flow by 28 percent. Impressively, that was despite a drop in overall generation to just 81 percent of the long-term average for the company’s facilities, due to subpar wind and hydro conditions. The latter were heavily affected by low water flows at all of the company’s British Columbia facilities, which suffered from slow snowmelt because of a long and cold winter in the province.

The good news is production is ramping up in the second quarter. That will add a further boost to what’s already a seasonally strong period that typically produces 33 percent of Innergex’ total output, versus just 19 percent in the first quarter.

Wind production should be aided by the resolution of loan rejection issues at the Gros Morne plant, which has been back on line without interruption since February.

Innergex does protect itself against weather conditions beyond its control with the use of derivatives. Profits from these helped keep earnings per share at 10 cents Canadian per share, which held the seasonally affected payout ratio to 145 percent. That number will show marked improvement in the second quarter as well as the rest of the year.

Looking ahead, Innergex is very much still an invest-to-grow story, with every new project completed boosting long-term cash flows. CEO Michel Letellier affirmed that the company is “moving forward with our many projects under construction and under development.” The company’s Stardale solar farm is expected to go into operation at the end of this month. A second unit at the Gros Marne facility is on track for startup on Dec. 1 2012.

Meanwhile, the Kwoiek Creek hydro facility is set to begin boosting cash flows during the final quarter of 2013, as is the Northwest Stave River hydro facility. The Viger-Denonville wind farm is progressing toward a spring 2013 startup, and there are another 2,844 megawatts of projects management describes as in “development stage.”

The company’s 25 facilities currently in operation sell 100 percent of their power under long-term contracts with an average life of 19.7 years and have an average age of less than seven years. And the buyers of their power are all government entities or major utilities, the most secure and recession-proof of payers.

The package here is a company that’s stable enough to grow almost no matter what happens to the economy, even as it continues to pay a secure and generous dividend. My only real question is when we’ll see a dividend increase. Given successful development of projects, it’s only a matter of time.

But until it does happen, I don’t advise paying more than USD10 for Innergex Renewable Energy.

Just Energy Group Inc’s (TSX: JE, NYSE: JE) Executive Chair Rebecca MacDonald commented on the energy marketer’s fiscal 2012 fourth-quarter (ended Mar. 31, 2012) results this way: “Some in the capital markets look at Just Energy’s overall payout ratio including expenditures to grow the business and think that a rising trend threatens our dividend. Nothing could be further from the truth.”

That was certainly backed up by the company’s strong results announced this week. Despite a 15 percent drop in heating degree days for the winter quarter, Just Energy posted a higher gross margin, the primary measure of operating profitability. Adjusted cash flow was lower by roughly 5 percent, but the payout ratio still came in at just 40 percent, just slightly above the 38 percent in the year earlier quarter when weather was far closer to normal.

My biggest worry for Just Energy coming into this reporting season was the impact of falling natural gas prices on its ability to sign on and retain new electricity and gas customers. Lower gas prices also push wholesale power costs lower, which theoretically should make it less attractive for consumers and businesses to switch to Just Energy.

Customer additions through marketing, however, came in at a record 316,000, up 35 percent from the fourth quarter of fiscal 2011 (ended Mar. 31, 2011). The company also managed to reduce the attrition rate from expiring contracts to 13 percent, pushing net customer additions up 73 percent from the year-earlier quarter.

The results are a testament to the success of the company’s numerous marketing channels, both in the US and Canada. They also demonstrate a continued acceleration of growth, despite far from ideal market conditions. The company also saw robust results at its HVAC and waterheater rental business, which boosted revenue 58 percent and gross margin by 78 percent year over year.

Meanwhile, bad debt expense shrank to 2.4 percent of relevant sales from 2.7 percent the a year ago.

Just Energy’s full-year payout ratio declined to 62 percent from 66 percent the year earlier. Profitability and sales beat prior guidance, and management set an even higher bar for growth for fiscal 2013, which will end Mar. 31, 2013: 10 percent and 12 percent growth in gross margin, with adjusted cash flow increasing between 8 and 10 percent.

That may not be enough to prompt management to raise the monthly dividend rate. But yielding nearly 10 percent already and demonstrating its resilience against falling gas prices and mild weather, Just Energy is a solid buy up to USD15 for those who don’t already own it.

Noranda Income Fund’s (TSX: NIF-U, OTC: NNDIF) first-quarter results were solid and continue the trend of strengthening that began last year.

Cash flow rose 27.8 percent, as the zinc refining facility that generates all of the company’s income realized its highest premiums on refined products since the first quarter of 2008. Sulphuric acid “netbacks”–essentially selling prices less production/input costs–rose 25.4 percent to near record levels.

Offsetting these positives to some extent were a lower level of zinc sales as well as a drop in copper prices that affected profits from that byproduct. There was also a negative impact from the supply and processing agreement with a unit of Xstrata Plc (London: XTA, OTC: XSRAF) that operates the facility and provides the raw materials for it.

These results were more than strong enough to support the current monthly dividend level. What wasn’t answered, however, is whether the trend is solid enough to support the kind of increase that shareholders are currently demanding, and which an independent committee is now reviewing.

When I entered this stock to the Canadian Edge Aggressive Portfolio last year, my premise was two-fold.

First, I believed the company would continue to strengthen as a business and secure the current dividend level, which at the time was approaching 10 percent. Second, I was betting the independent committee would rule with shareholders and restore the dividend at least part way toward the original initial public offering level, which is roughly twice the current payout.

Thus far, objective one has been fulfilled. Noranda continues to increase its profitability. It’s also paying off debt rapidly, with finance costs dropping 60.4 percent during the quarter.

More controversial is management’s continuing decision to build up a reserve in case the facility shuts down in 2017 upon expiration of its zinc contract with parent Xstrata. The latter has continued to play hardball with shareholders, who refused to sell out to it at a discounted price in late 2010. And it’s repeatedly threatened not to renew the zinc supply contract to the facility, even though that would cut into its own profitability as the majority owner of the plant.

For their part, shareholders maintain Xstrata will almost surely renew the supply contract and that there would be alternatives if it should refuse to. That seems logical, as does the fact that the facility’s output is in heavy demand.

In any case, at some point, Noranda will have virtually no debt and either a hefty cash reserve against the worst-case scenario or a much higher dividend level. That’s pretty solid support for this speculation, which I continue to rate a buy up to USD6 for those who don’t already own it.

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–Apr. 26 Flash Alert
• Artis REIT (TSX: AX-U, OTC: ARESF)–May 11 Flash Alert
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–May 8 Flash Alert
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–May 17 Flash Alert
• Brookfield Renewable Energy Partners LP (TSX: BEP-U, OTC: BRPUF)–May 8 Flash Alert
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–May 11 Flash Alert
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–May 11 Flash Alert
• Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–May 11 Flash Alert
• Dundee REIT (TSX: D-U, OTC: DRETF)–May 8 Flash Alert
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–May 17 Flash Alert
• IBI Group Inc (TSX: IBG, OTC: IBIBF)–May 17 Flash Alert
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–May 17 Flash Alert
• Just Energy Group Inc (TSX: JE, OTC: JUSTF)–May 17 Flash Alert
• Keyera Corp (TSX: KEY, OTC: KEYUF)–May 11 Flash Alert
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–May 11 Flash Alert
• Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF)–May 8 Flash Alert
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–May Portfolio Update
• Shaw Communications Inc (TSX: SJR/B, NYSE: SJR)–Apr. 26 Flash Alert
• Student Transportation Inc (TSX: STB, OTC: STUXF)–May 11 Flash Alert
• TransForce Inc (TSX: TFI, OTC: TFIFF)–Apr. 26 Flash Alert

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–May High Yield of the Month
  
• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–May 11 Flash Alert
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–May Portfolio Update
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–May 11 Flash Alert
• Colabor Group Inc (TSX: GCL, OTC: COLFF)–May Portfolio Update
• Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF)–May 11 Flash Alert
• Extendicare REIT (TSX: EXE-U, OTC: EXETF)–May 11 Flash Alert
• Newalta Corp (TSX: NAL, OTC: NWLTF)–May 11 Flash Alert
• Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–May 17 Flash Alert
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–May 8 Flash Alert
• Pengrowth Energy Corp (TSX: PGF, NYSE: PGH)–May Portfolio Update
• PetroBakken Energy Ltd (TSX: PBN, OTC: PBKEF)–May Portfolio Update
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–May 11 Flash Alert
• PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–May Portfolio Update
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–May 8 Flash Alert