The Canadian Edge Portfolio represents our top choices for investors seeking exposure to high-quality dividend-paying companies based in the Great White North.

And each month we offer two selections from the Portfolio–typically one Conservative Holding and one Aggressive Holding–that represent our “Best Buys” for new money right now.

If you have money to invest, the Best Buys feature is the place to start.

From there the next step is to consult the Portfolio tables. Any Conservative or Aggressive Holding that’s trading below its recommended buy-under target is a solid choice, provided it fits within your risk-tolerance parameters.

Investors seeking consistent income and low volatility should focus primarily on the Conservative Holdings, supplementing a foundation built on businesses supported by fee-generating assets or regulated activities with select Aggressive Holdings with track records of sustaining and growing their payouts throughout the cycle.

Growth-oriented investors, with longer time horizons and therefore the ability to withstand and build back after inevitable market selloffs, can emphasize Aggressive Holdings, populated with oil and gas producers and other companies whose fortunes are more tied to economic ups and downs.

At the same time, How They Rate includes buy-rated businesses that may also help income- or growth-oriented investors achieve their objectives.

What follows is a review of 10 companies from various segments of the coverage universe–some more aggressive than others, others tending to the very conservative–that, for lack of a better term, represent the “best of the rest,” that for any number of reasons haven’t found their way into the Portfolio but could very likely find a place in the future.

Some offer extremely attractive yields, though there are considerable risks attached that clearly identify them as aggressive recommendations. For the most part, however, we’re attracted to consistent growth–in revenue, earnings and dividends–as opposed to the biggest yield. But we do have a “treat,” if you will, in the form of a 9 percent-plus yielder.

Please, if you can’t tolerate big price swings stay away. We very much advocate the “tortoise” approach to investing versus the “hare” method: Slow and steady wins what is a marathon, not a sprint.

We lead off with a Canadian real estate investment trust (REIT) that indeed is a candidate for the Portfolio.

The Next REIT

The Canadian industrial market continued to operate under relatively healthy fundamentals during the first quarter of 2014, with a lower national availability rate, higher net asking rental rate and positive net absorption.

According to CBRE, the overall national availability rate was at 5.6 percent, a 20 basis point quarter-over-quarter improvement. The average net asking rental rate was CAD6.01 per square foot, just shy of the record high of CAD6.02 per square foot recorded in the third quarter of 2013. The market also recorded 5.1 million square feet of positive net absorption during the first quarter, well above the 10-year quarterly average of 3.6 million square feet.

Of the major industrial markets, Edmonton experienced the most significant rise in rental rates, with a record high of CAD10.83 per square foot in the first quarter, accompanied by the lowest availability rate in Canada at 3.9 percent and 1.4 million square feet of positive net absorption.

These were primarily the result of higher demand from the transportation and warehousing sectors in the region.

There are currently approximately 13.4 million square feet of construction in progress. Most of the construction is in the Greater Toronto Area (43.7 percent of total square footage under construction), which was driven by increasing demand for distribution centers from retailers.

Demand for industrial space should remain strong, and rental rates should continue to increase moderately as the Canadian manufacturing sector expands and retailers continue to invest in their distribution networks. REITs with industrial exposure should benefit from strengthening fundamentals.

That’s the long case for Dream Industrial REIT (TSX: DIR-U, OTC: DREUF), which was spun off from what was then Dundee REIT and what’s now Dream Office REIT (TSX: D-U, OTC: DRETF), a Conservative Holding, in October 2012.

Dream Office continues to put up solid financial and operating numbers. But, probably due to the fact that the Canadian office market is struggling relative to other property segments, the unit price has lagged those of its REIT peers.

Dream Industrial is exposed to the more favorable industrial market.

Management reported adjusted funds from operations (AFFO) per unit of CAD0.199, up 1 percent sequentially and 6.4 percent year over year. The AFFO payout ratio improved to 88.6 percent from 96.6 percent for the prior corresponding period.

Over 700,000 square feet of new leasing and renewals commenced in the quarter at rates 11 percent higher than rates on expired leases, and commitments have been obtained for 1 million square feet of new leasing and renewals commencing in the remainder of 2014 compared to 1.2 million square feet of expirations.

Management should be able to realize solid rent growth, with estimated market rents exceeding in-place rents by approximately 5.1 percent.

Occupancy was 95.6 percent as of June 30, 2014, compared to 96.3 percent as of March 31, 2014, and 95.7 percent as of Dec. 31, 2013. Occupancy the end of the second quarter included 245,000 square feet of commitments on vacant space.

Leverage remained stable at 52.4 percent, with interest coverage of 3.0 times and a weighted average term to maturity on debt of 4.1 years.
Dream Industrial REIT, which is yielding 7.3 percent at current levels, is a buy under USD11.

More Power

Algonquin Power & Utilities Corp (TSX: AQN, OTC: AQUNF) owns and operates regulated electric and natural gas utilities as well as electric generation facilities through its wholly owned subsidiaries Liberty Utilities Co and Algonquin Power Co.

Lately it’s been trying to expand into the US via the acquisition of Gas Natural Inc (NYSE: EGAS), a regulated gas distribution utility with operations in Montana, Wyoming, Ohio, Pennsylvania, Maine and North Carolina.

Algonquin sent letters to Gas Natural’s board on Jan. 3, March 5 and May 15 outlining possible takeovers at USD10, USD12 and USD13 per share. It did purchase a 4.9 percent stake in the target in April 2014. And last month Algonquin took its case public, issuing via press release a copy of another letter to Gas Natural’s board dated July 23.

Gas Natural insists it’s not for sale.

We’ll learn more about Algonquin’s pursuit when it reports second-quarter results on Aug. 14.

Algonquin’s regulated operations generate nearly 60 percent of earnings before interest, taxation, depreciation and amortization (EBITDA), providing solid ballast against the more volatile generation segment.

Weather decoupling mechanisms reduce exposure to volumetric risk for Liberty Utilities, while approximately 90 percent of Algonquin Power’s output is sold under power purchase agreements (PPA) with a weighted-average life of approximately 14 years as of March 31, 2014. The strong contractual position reduces volatility of earnings and cash flow as well as the exposure to the depressed North American merchant power market.

Algonquin is in the midst of an aggressive expansion plan, highlighted recently by its pursuit of Gas Natural. Success would lift the regulated contribution to overall EBITDA. Algonquin Power & Utilities, which is yielding 4.2 percent, is a buy under USD8.25.

Boralex Inc (TSX: BLX, OTC: BLXFF) is a pure-play renewable power producer–wind, hydroelectric, thermal and solar–with installed capacity of more than 650 megawatts (MW) in Canada, the Northeastern US and France.

It has approximately 250 MW under development that will be in service by the end of 2015.

Boralex declared its first-ever dividend in February 2014, CAD0.13 per share paid quarterly. It’s currently yielding 3.7 percent.

Second-quarter revenue grew by 34 percent to CAD53.8 million, while EBITDA was up 34 percent to CAD32.2 million. EBITDA margin improved slightly to 59.8 percent from 59.7 percent for the prior corresponding period.

Adjusted cash flows from operations amounted to CAD12.2 million or CAD0.32 per share, up from CAD9.4 million, or CAD0.25 per share, a year ago.

Boralex has set a financial and strategic target of establishing a wholly owned asset base of approximately 950 MW and reaching an EBITDA of CAD200 million by the end of 2016.

The company will be an aggressive participant in the call for tenders of Hydro-Quebec Distribution for 450 MW of wind power to be delivered between 2016 and 2017. The bid deadline is September 2014. Boralex is also exploring development possibilities in Ontario, British Columbia and France. Boralex is a buy under USD14.

Canadian Utilities Ltd (TSX: CU, OTC: CDUAF) has raised its dividend every January (and sometimes more often) for more than two decades. The 2.8 percent yield is modest, but the record of dividend growth is outstanding.

Canadian Utilities is a holding company whose principal operating subsidiaries include CU Inc, regulated electric and gas transmission and distribution operator; The Energy Group, which includes regulated and non-regulated generation assets in Canada and the ATCO Energy Solutions business; ATCO Australia; and other assets, which includes ATCO I-Tek and a 24.5 percent investment in ATCO Structures & Logistics.

Canadian Utilities generates strong consolidated cash flows, the majority of which are sourced from stable, regulated and low-risk operations at CU Inc.

It maintains a low debt-to-capital ratio, and its liquidity position is strong, with approximately CAD800 million in unused credit facilities and more than CAD700 million in cash. The company has a policy of maintaining minimum cash balances at all times to bolster its liquidity position.

Management reported second-quarter adjusted earnings of CAD85 million compared to CAD131 million a year ago, the decline due primarily to unfavorable market conditions in the power generation business and an Alberta Utilities Commission (AUC) decision received by the
Utilities in the second quarter for information technology (IT) that reduced adjusted earnings by CAD26 million, of which only CAD2 million related to the second quarter of 2014, with CAD24 million related to prior periods
 A decrease in earnings in ATCO Power was primarily due to a 66 percent decline in the average Alberta Power Pool price and higher natural gas input costs.

The utilities continued to invest in electricity and natural gas transmission and distribution facilities to support growth in the province and replace aging infrastructure. ATCO Electric, ATCO Gas and ATCO Pipelines collectively invested CAD501 million in the second quarter, bringing the total for the first half of 2014 to CAD1 billion.

Canadian Utilities is a buy under USD36.

Communications Buildup

BCE Inc (TSX: BCE, NYSE: BCE) is the parent of Canada’s largest telecommunications company, Bell Canada, which provides data, voice, video and residential services to business and retail customers.

BCE recently announced a deal to consolidate ownership of regional wireline communications provider Bell Aliant Inc (TSX: BA, OTC: BLIAF), in which it had a 44 percent stake, for CAD3.95 billion, or CAD31 per Bell Aliant share.

BCE should see substantial benefits from privatizing Bell Aliant, as complete ownership will boost scale and competitiveness, create synergies and result in more effective capital
allocation. This, combined with BCE’s strong wireless growth and Bell Aliant’s successful fiber expansion, should offsets risks associated with increased financial leverage.

Management expects to achieve synergies of CAD100 million per year, including reduced corporate overhead, labor savings and streamlined network investments. The combined entity is on track to generate more than CAD1 billion in free cash flow after dividends, about 20 percent above what BCE could see on its own.

A more effective allocation of capital investment will also help BCE compete with its national peers Telus Corp (TSX: T, NYSE: TU) and Rogers Communications Inc (TSX: RCI/B, NYSE: RCI), boosting its position in both Atlantic Canada and in southern Ontario and Quebec. Market share, earnings and  cash flow should all show meaningful growth over the long term.

BCE, which is yielding more than 5 percent at current levels, is a buy under USD45.

Exchange Income Corp (TSX: EIF, OTC: EIFZF) was founded in March 2004 with the mandate of acquiring companies in the industrial and transportation sectors that have strong operating characteristics but that lack the size and growth opportunity to effectively access public markets independently. Since its inception the company has acquired and integrated 11 companies.

Acquisitions have been the primary vehicle of growth through the company’s history and will likely be a significant driver of growth going forward.

It’s a well-diversified portfolio that generates stable and defensible earnings. Management also has a track record of adding accretive acquisitions to the mix, which supports earnings and dividend growth.

Right now the key for Exchange is its WesTower unit, which is one of the largest self-perform telecommunications construction companies in North America. Results for the unit are driven by AT&T Inc (NYSE: T), its largest customer. AT&T is currently running a 2014 CAPEX budget of USD21 billion, with no plans in the works to reduce it.

This is an extremely aggressive position, as the current yield of 9.1 percent would suggest. Exchange has taken on significant debt to grow its business, and a lot is riding on WesTower generating substantial earnings growth.

This is not a play for a conservative investor seeking consistent income. Rather, the current yield should be viewed as compensation for the significant risk endured. Exchange Income Corp is a buy for only the most aggressive investors up to USD22.

Exchange Income will report second-quarter results on Aug. 12.

New Nukes

On July 23 the CEO of Southern Company (NYSE: SO), which is building two nuclear reactors in Georgia, said the company hopes to announce plans by year’s end for additional nuclear units of the Westinghouse AP1000 design.

Tom Fanning told reporters at a conference in Washington, DC, held by the Bipartisan Policy Center that the US electric utility is evaluating six possible sites for additional reactors, including existing plants and greenfield locations.

Southern subsidiary Georgia Power is building two 1,150 megawatt (MW) reactors at its Vogtle site, where two units already operate. The new reactors are AP1000 reactor designs; a future plant would be a “cookie cutter” version of the two-unit Vogtle expansion, according to Mr. Fanning.

The first new Vogtle unit is expected to enter commercial operation at the end of 2017 or the beginning of 2018, with the second unit to follow about a year later.
That’s good news for Cameco Corp (TSX: CCO, NYSE: CCJ), one of the world’s largest primary uranium producers.

Cameco’s involvement in the nuclear fuel cycle includes uranium exploration, development, mining and processing, provision of nuclear fuel processing services and acting as traders and brokers of nuclear fuel products and services.

An even more powerful catalyst for uranium prices and Cameco stock will come from Japan. Prior to the March 2011 Fukushima Daiichi nuclear disaster nuclear accounted for 30 percent of Japan’s electric power generation.

On July 16 Japan’s Nuclear Regulation Authority announced that safety clearance was granted to two 890 MW nuclear reactors in Kagoshima, Japan.

The reactors, owned by Japanese utility Kyushu Electric Power Co Inc (Japan: 9508, OTC: ADR: KYSEY), passed Japan’s strict, post-Fukushima standards for safety to operate.

The start-up will begin after final approval by the local community is given, which may be delayed as Kyushu prepares additional, detailed paperwork on specific safety features at the site and how they planned to construct them.

Documentation issues meant final deliberations on the restart could be pushed back by the regulator, delaying the restart until after winter.

The company doesn’t have a timeline for starting up the reactors, and submission of additional documents may be delayed until late September or even October.

Nevertheless, Japan is close to restarting its nuclear reactors after enduring its first summer in more than 40 years without them.

Japanese utilities have submitted requests for safety certification on 19 reactors.

Cameco is a buy under USD25 for aggressive investors.

Additional Resources

The February 2014 acquisition of Aurora Oil & Gas Ltd for CAD2.8 billion, its biggest-ever acquisition, expanded heavy-crude producer Baytex Energy Corp’s (TSX: BTE, NYSE: BTE) US shale portfolio to include output from the Eagle Ford Shale formation in Texas, one of the most prolific plays in North America.

The Eagle Ford deal boosted Baytex’s production of higher-priced light oil. And it provides exposure to Gulf Coast crude oil markets via established transportation systems.

Management recently opted to sell North Dakota Bakken assets for CAD357 million, shifting capital to its promising Eagle Ford assets.

With a yield north of 6 percent and three promising core plays–including Peace River and Lloydminster in addition to the Eagle Ford–Baytex is a solid growth-plus-income option for energy investors.

During the second quarter Baytex produced 66,934 barrels of oil equivalent per day (boe/d), up 12 percent sequentially and 15 percent year-over-year, at 87 percent oil and natural gas liquids.

Funds from operations were CAD202.5 million, or CAD1.49 per share, up 19 percent compared to the first quarter and 30 percent compared to the second quarter of 2013.

Operating netback–which is the sales price less royalties, production and operating expenses and transportation expenses–was CAD40.74 per barrel of oil equivalent boe, an 11 percent sequential increase and a 28 percent year-over-year increase.

And management also announced a 9 percent dividend increase to a monthly rate of CAD0.24 per share.

Baytex has sold off along with the slide in crude oil prices since late June, providing a compelling opportunity for investors with a long-term focus. Baytex Energy is a buy under USD46 for production and dividend growth.

The share price of Methanex Corp (TSX: MX, NSDQ: MEOH) has recovered somewhat from a late winter, early spring selloff that took it from an all-time high of CAD80.19 on March 6, 2014, to CAD62.12 by June 2. But at CAD67.59 on the TSX and USD61.65 on the Nasdaq as of Aug. 8 it still represents good value.

Management reported a second-quarter profit of USD125 million, or USD1.24 per share, up from USD54 million, or USD0.56 per share, a year ago.

Adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) were USD160 million, up 1.9 percent from USD157 million a year ago. Revenue was up 8 percent to USD792 million.

The average realized price was USD450 per ton in the quarter, up 5.9 percent from USD425 per ton a year ago. Total production was 1,216,000 tons, a 15.6 percent year-over-year increase. Sales volume declined 1.9 percent to 1,992,000 tons.

Methanex, the world’s largest producer and supplier of methanol to North America, Asia-Pacific, Europe and Latin America, occupies a dominant position in a vital industry.

Approximately two-thirds of all methanol demand is used to produce traditional chemical derivatives, including formaldehyde, acetic acid and a variety of other chemicals that form the basis of a large number of chemical derivatives for which demand is influenced by levels of global economic activity.

The remaining one-third of methanol demand comes from energy-related applications.

There has been strong demand growth for direct methanol blending into gasoline, as a feedstock in the production of dimethyl ether (DME), which can be blended with liquefied petroleum gas for use in household cooking and heating, and in the production of biodiesel.

Methanol is also used to produce methyl tertiary-butyl ether (MTBE), a gasoline component, and an emerging application is for methanol demand into olefins.

Methanex declared its first dividend in July 2002 at CAD0.05 per share. It’s raised the quarterly payout nine times since, including three times since the end of the Great Financial Crisis, during which it held the dividend steady. The company has never cut its payout.

Methanex is a buy for consistent income and long-term growth under USD65.

Cleanup Hitter

One of North America’s leading solid waste management companies, Progressive Waste Solutions Inc (TSX: BIN, NYSE: BIN) in 2013 derived 62 percent of its revenue from its US operations.

Its business is leveraged on the upside to economic activity, as rising GDP generally begets more garbage to handle. Progressive Waste enjoys downside protection due to the fact that it operates under long-term contracts with high-quality customers.

As the economy accelerates in the US volumes will increase. The company has bid on a number of major contracts, and earnings are set to rise steadily.

Progressive Waste has raised its dividend three times in the past 18 months, including a 6.7 percent boost last month, when it reported second-quarter results.

Revenue excluding the negative impact of foreign currency translation grew by 1.9 percent to USD526.5 million, with organic growth of 2 percent on higher collection and disposal prices.

Consolidated volumes declined 0.2 percent from the second quarter a year ago but were up sequentially for the third consecutive quarter and are on track to turn positive in the second half of the year. Adjusted EBITDA increased by 0.6 percent, excluding the impact of foreign currency translation, driven by revenue gains and lower costs, offset by higher operating expenses as a percentage of revenue.