Right at the tail end of second-quarter earnings reporting season for Utility Forecaster and Canadian Edge and in the middle of fiscal 2014 and 2013 first-half reporting for Australian Edge companies, I got together in cyberspace with subscribers to all three publications for our monthly chat session.

We typically do it the last Wednesday of every month, except December, where we inevitably run up against holiday events.

And in August we got together on Tuesday the 26th because I had to close the sale of my old house and the purchase of my new on Wednesday the 27th.

But if you haven’t joined in yet, you can look forward to another session on Wednesday, Sept. 24, at 2 pm.

If you’re a UF subscriber, go to www.InvestingDaily.com/Utility-Forecaster/live-web-chats/ for more information and to sign up to receive an e-mail notification for the event. CE and AE subscribers can do the same at www.InvestingDaily.com/CanadianEdge/live-web-chats/ and www.InvestingDaily.com/AussieEdge/live-web-chats/, respectively.

I stick around to answer just about every question asked, so if there’s something on your mind that isn’t addressed in a regular issue of UF, CE or AE this is a great opportunity.

Financial and operating numbers have been basically solid across the board for Portfolio Holdings, although we do have some concerns about market performance for some recommendations.
All in all, however, dividends for UF, CE and AE Portfolio Holdings remain well supported, and things should continue to get better with improving global economic conditions.

Federal Reserve Chair Janet Yellen wasn’t as dovish as many observers expected during her remarks at the US central bank’s annual gathering of global economic and financial cognoscenti in Jackson Hole, Wyoming.

There are three more meetings of the Federal Open Market Committee in 2014, and though recent economic data indicate a strengthening US economy, we’re still not seeing the type of wage growth that will drive inflation.

The US labor market is showing signs of durable health, although absent meaningful wage growth the Fed will probably hold off on its first interest rate hike since July 2006 until mid-2015.

What we can prepare for is a dramatic stock market reaction to such a move. If history–the “taper tantrum” of mid-2013, for example–is any guide investors will dump utilities, REITs and other dividend-paying equities that are perceived to be vulnerable during a rate-hiking cycle.

But our view is that this rate-hiking cycle will be slower, and its peak will be below those of other similar cycles in the past.

In short, we think dividend-paying stocks such as utilities, REITs and MLPs will be good vehicles for wealth-building for the long term, as we settle in to a prolonged period of slower-than-historical-trend growth.

That’s now we got things rolling last week. Here’s an edited transcript of subscriber questions and my answers.

Question: Good Morning. David. I’ve owned Pembina Pipeline Corp (TSX: PPL, NYSE: PBA) and Baytex Energy Corp (TSX: BTE, NYSE: BTE) since 2008 and have a cost basis of $18.40 and $16, respectively.

Do you think taking some profits at current levels would be prudent, or do you generally feel that these may still be good plays even though they are close to or over your buy limits?

With the currency risk, the value of Canadian dollar versus the US dollar has been steadily eroding since 2011; coupled with mandatory Canadian tax withholding, there are other opportunities (in Utility Forecaster) in the US that don’t reduce the income as is happening with Canadian stocks that I’m holding in an open account. Thank you.

Answer: Good morning. You must be on the West Coast.

I think it is a good idea to periodically book profits on holdings that have appreciated a good bit, using proceeds to establish new positions in companies that may represent better value at current price levels.

Your observation about the Canadian dollar versus the US dollar is of course spot on–the loonie has softened from near parity, as Canadian economic growth has lagged that of the US in recent years. And the US appears to be closer to a tightening cycle than the Bank of Canada, which would eat away some interest rate premium.

I like the loonie’s and Canada’s long-term fundamentals.

I do think your idea of reallocating proceeds from partial sales of your positions in Baytex and Pembina to US-based utilities generally makes sense, provided the recommendations you choose are trading below buy-under targets.

Question: Thanks for these chats! Your short- and long-term thoughts on Consolidated Water Co Inc (NSDQ: CWCO) after its recent earnings report?

Answer: Consolidated Water had a decent quarter: retail water revenue was up 5 percent on an 8 percent increase in gallons sold, though bulk water revenue was off 2 percent on weaker Bahamas sales. Profit was flat. The payout ratio was an acceptable 81 percent.

I think the long-term picture for this company–the largest publicly traded desalination play in the world–is bright given the dearth of potable water around the world. It is for aggressive investors, though the 2.5 percent yield provides OK compensation for the risk.

The big hope is the Rosarito, Mexico, project, where progress has been slow. But a site has been selected, and early engineering work is underway.

Like I said, I consider this a long-term play for aggressive investors. But I was encouraged by second-quarter results.

Question: Hi, David. What’s your short-term and long-term outlook for Penn West Petroleum Ltd (TSX: PWT, NYSE: PWE)? Do you think that its current dividend is safe? At current prices, what is the better long term buy, Penn West or Baytex?

Answer: Penn West is in some dire straits. Management recently announced it would be restating financials for 2012, 2013 and the first quarter of 2014. Second-quarter reporting has been delayed as well. The main issue is CAD281 million of “irregularities” that led to a change in the CFO’s office.

Baytex is much the better play right now. Baytex reported second-quarter production growth of 12 percent quarter over quarter and 15 percent year over year. Funds from operations were CAD202.5 million, or CAD1.49 per share, up 19 percent sequentially and 30 percent year over year.

Penn West has operational issues and now serious financial problems as well that will once again set back its seemingly perpetual turnaround effort.

Question: With stock prices so high, is this the WRONG time to enter new positions?

Answer: Looking at it on a company-by-company basis, there are stocks in the UF, CE and AE portfolios and broader coverage universes that are trading below our buy-under targets.

Question: What should I do with my Integrys Energy Group Inc (NYSE: TEG) shares and when?

Answer: I would hold it through the merger and take the 1.128 Wisconsin Energy Corp (NYSE: WEC) shares and $18.58 in cash for each Integrys share you own. As of now, with Wisconsin Energy trading at $44.35, the deal values Integrys at approximately $68.60. Integrys is trading below $68 as of this writing.

We’ve also added Wisconsin Energy to the UF Income Portfolio Conservative Holdings, so we recommend the combined entity for the long term.

Question: If you were investing money tomorrow, what are your top three choices currently?

Answer: American Water Works Co Inc (NYSE: AWK), Energy Transfer Partners LP (NYSE: ETP) and Transurban Group (ASX: TCL, OTC: TRAUF).

Question: Are you recommending any bonds at this time? If so please identify.

Answer: It’s hard to find a bond with a decent yield right now without going too far out on the time horizon (we like to focus on maturities of seven years or less) or taking on significant credit risk.

I have added one bond to the UF Income Portfolio Core Holdings since I took over in May 2013, the Sprint Communications Inc 11.5 Percent Note of 11/15/21 (CUSIP: 852061AM2), which offers a yield to maturity of a little more than 6 percent. It’s right at the limit of our preferred time horizon.

Question: Hello. I’m concerned about my profits in Entergy Corp (NYSE: ETR). Do you feel I should hold on to it?

Answer: Entergy had a nice, big surge in the spring that tired out in early July. It has bounced again in recent weeks. And I still recommend it as a buy under 75.

Second-quarter numbers were solid, after a spectacular first quarter. Operational earnings per share (EPS) were up 9.9 percent, as wholesale performance improved, with no refueling outages, and industrial sales drove utility results.

Stronger economic growth in its service territory is a good sign that the mid-2014 performance is likely a breakout from the sideways pattern of 2011 to early 2014. I think we’ll start to see some dividend growth here soon, too.

Question: CEMIG (NYSE: CIG) in Brazil has certainly suffered due to government involvement in its business, but of late perhaps some of the initial fears have abated somewhat and the stock has risen. Should investors stay the course? Or should they take advantage of the recent stock price rise and exit?

Answer: CEMIG has been on a really good run since late March. I think the bigger issue is Brazil getting back to solid, sustainable economic growth.

I rate CEMIG a hold at these levels. Second-quarter earnings before interest, taxation, depreciation and amortization (EBITDA) were up nearly 30 percent, while net income was up more than 20 percent.

I would strongly consider booking a profit if you have one after the strong recent run-up. But it does provide good geographic diversification and exposure to a turnaround for the Brazilian economy.

Yes, the political risks are real, but the bigger issue to me is the durability of Brazil’s recovery.

Question: Spectra Energy Partners LP (NYSE: SEP) has been a rocket over the past year. I really like the story, but the unit price is well above your buy-up-to price.

How often do you reevaluate the buy price for the equities you follow? What’s the likelihood that you’ll increase the buy point on SEP in the near future?

Answer: Our standard operating procedure up until mid-2013 was to boost buy-under targets based on dividend growth. We have started looking at other factors, including asset additions and other indicators of long-term strengthening of underlying businesses. Ari, Richard and I are discussing establishing a more concrete valuation metric, though we haven’t finalized anything yet.

Spectra Energy Partners, which reported solid second-quarter distributable cash flow (DCF) per unit growth on asset additions, with management guiding to 8 percent to 9 percent distribution growth through 2016 supported by parent Spectra Energy Corp’s (NYSE: SE) $35 billion CAPEX plan is a good candidate for a higher buy-under target.

Question: Can you please give your thoughts on Buckeye Partners LP (NYSE BPL)? Thanks.

Answer: Buckeye had a tough second quarter, as DCF per unit was down 19.8 percent to $0.81 on weak marketing results. Management has been proactive, reducing the size, scope and risk associated with its merchant operations in favor of regulated ops.

The unit price has come down from its late July peak, but it’s still above our $75 buy-under target.

Question: With all the Mideast turmoil why are oil prices so low?

Answer: Because US production is tracking to 40-year highs.

Question: Best place for new cash in an IRA? I have numerous of your recommended picks. Thank you.

Answer: American Water Works, the August 2014 UF Growth Spotlight, and Southern Company (NYSE: SO), the September 2014 Growth Spotlight, are good places to start. I also like NextEra Energy Inc (NYSE: NEE), though it’s a little above our buy-under target right now.

Question: After the Kinder Morgan Inc (NYSE: KMI)-Kinder Morgan Energy Partners LP (NYSE: KMP) “conversion” I started paying more attention the relationships between various master limited partnerships (MLP), their general partners (GP) and the potential risks and rewards of diversifying with some in the MLP in a taxable account offset with some of the GP in an IRA.

Would you care to comment? Also, the relationship between Energy Transfer Partners and Energy Transfer Equity LP (NYSE: ETE) is very confusing.

Answer: I think the way Richard Kinder structured the consolidation will prove to be unique. And it’s a transaction that will not be favorable for long-term holders of KMP, whether held in an IRA or in a taxable account. Mr. Kinder is “stepping up” the basis of the KMP (and El Paso Pipeline Partners LP (NYSE: EPB)) assets, with the tax consequences devolving to individual unitholders while the new KMI, as a taxable entity, will now enjoy the benefits of future depreciation from that stepped-up basis.

It’s long-term positive for owners of new KMI, but KMP holders will have in some cases significant tax liabilities–again, whether in an IRA or a taxable account.

ETE owns ETP’s general partner; it is essentially KMI to ETP’s KMP, though the IDRs ETP pays to ETE aren’t as significant as what KMP was paying to KMI.

Question: What are your thoughts on Spectra Energy?

Answer: Spectra Energy is a well-run midstream energy company that’s investing heavily in expanding its natural gas infrastructure assets with a $35 billion CAPEX program. It’s a little pricey at these levels, but dividend growth is consistent and well supported by asset growth.

Question: What is your opinion of Duke Energy Corp (NYSE: DUK) now, hold or buy?

Answer: I rate Duke Energy a buy up to $70. Second-quarter earnings growth was impressive, supported by favorable weather and decent economic conditions in its service territory.

Question: Thoughts on Aqua America Inc (NYSE: WTR)?

Answer: Aqua America boosted its dividend by 8.6 percent, as second-quarter revenue grew by 0.7 percent and earnings per share rose 3.3 percent.

Management continues to grow via acquisition of municipal water systems, with an excellent record of efficient integration. Industrial demand driven by shale drilling in Pennsylvania supports overall demand. It’s a buy under $26.

Question: Hi David. Wondering what’s wrong with Artesian Resources Corp (NSDQ: ARTNA) that doesn’t meet the surface. Virtually no price appreciation since 2011, and material pullbacks more recently. Thanks for your comments.

Answer: Cost management has been an issue, and water demand has been trending down in its Delaware territory. Relative to other water utes such as American Water Works and Aqua America Artesian Resources is highly concentrated geographically. That’s the primary reason I favor the former two.

Question: What MLP would you buy today to replace the KMP I sold at $98.50 while on its descent? This is in a regular account and not an IRA. While I’m on the subject of recommendations, what do you like today? Thanks.

Answer: Energy Transfer Partners is the September 2014 UF Income Spotlight, which means it’s one of our two best buys for new money. I also like Plains All American Pipeline LP (NYSE: PAA).
Southern Company is the September 2014 UF Growth Spotlight.

Apart from that, any Portfolio recommendation–in UF, CE or AE–that’s trading below its buy-under target is ripe for picking by investors with money to put to work right now.

Start with “best buys”–Growth and Income Spotlights in UF, “Best Buys” in CE, “Sector Spotlights” in AE–then work back to the Portfolios.

Question: How much work related to the new Canadian oil sands find can Bird Construction Inc (TSX: BDT, OTC: BIRDF) expect to get?

Answer: I think Bird Construction, because of its experience, is well placed for any new oil sands-focused construction work. It won’t win it all, but it will definitely benefit from any uptick in activity in the region.

Question: Can you comment on the Kinder Morgan transaction and your thoughts on long term prospects of KMI?

Answer: The new KMI is going to be big, its cost of capital will be much lower than what the Kinder complex–including KMI, KMP/KMR and El Paso Pipeline Partners–had to bear and it will be able to support a growing dividend based on the broader trend of rising US oil and gas output.

From the perspective of a long-term KMP unitholder, it’s not a good deal. The new KMI gets all the tax benefits, KMP (and EPB) unitholders all the burdens.

Question: How often should you take profits in your income portfolio and then reposition the proceeds in new income-focused stocks? And what percentage of MLPs is too high for an income portfolio? Last one: What’s the highest dividend yield you would be comfortable with for a stock in an income portfolio?

Answer: When to book profits depends on multiple factors specific to you, your portfolio, your objectives and your risk tolerance. I can’t provide an answer there.

I do think it makes sense to book profits on positions that grow to represent outsized portions of your overall portfolio, while maintaining the value of your original investment.
I would limit to 20 percent the allocation to any single asset class or non-domestic geographic allocation.

Your last question is also very fact-pattern specific. The first thing I’d want to explore is whether the high yield is a function of market inefficiency or whether the market correctly prices in a dividend cut.

Question: David, AmeriGas Partners LP (NYSE: APU) has been somewhat flat although pays a nice dividend. Do you see any upside in the unit price in the short term? If so, what would be the catalyst?

Answer: AmerGas Partners will have to grow by extending its market share, as propane demand is in a long-term downtrend as consumers switch to natural gas for their heating needs.
It’s been volatile but generally trending higher since 2012, however, and the distribution rate is consistently growing.

I am focused on the longer-term demand trend, however, and what that says about the sustainability of distribution increases.

Question: David, could you comment on continuing long term holding of Southern Company, Duke and Atmos Energy Corp (NYSE: ATO)?

Answer: Southern Company is the September 2014 UF Growth Spotlight, which means it’s one of our two top picks for new money right now. It looks like the worst is behind it with regard to the Vogtle nuclear expansion and the Mississippi IGCC plant. Industrial demand in its service territory was also solid in the second quarter, signaling a durable economic recovery.

I consider Duke Energy a core holding for any dividend-focused investor, based on its scale and favorable economics (and demographics) in its Carolinas service territory.

Atmos Energy has been priced well above our buy-under target for some time, though we did boost it to $48 recently. Fiscal 2014 third quarter adjusted net was up 17% for this solid natural gas distribution utility.

Question: Would you continue to hold KMP at this time?

Answer: That depends on multiple factors. There could be more upside because the variable part of the equation is the value of KMI. If KMI continues to appreciate, the value of your KMP holding will rise.

You’re going to have tax liability on your KMP position. The extent depends on how long you’ve held it and how big your position is. If KMI rises, the value of your KMP position will rise based on the variable component of the offer. (You’ll get 2.1931 KMI shares per KMP unit plus a fixed cash payment of $10.77 per unit.)

KMI is down the last couple days, but I don’t know whether that will develop into a trend or whether it will go higher again.

The answer depends on whether you want to establish some “tax certainty” now. I also am bullish on the “new KMI’s” long-term prospects, with management guiding to 10 percent annual dividend growth from 2015 through 2020. So you may want to wait it out and take the exchange, i.e. 2.1931 KMI shares per KMP unit plus $10.77 per unit in cash.

I’d like to make it clear that I think the structure of the transactions is not favorable for long-term KMP holders. It will help create an impressive midstream vehicle in the form of the new KMI. But loyalty was not rewarded here.

Question: I joined Canadian Edge a week ago. I’ve never traded stocks before, and I have a small nest egg. What would you recommend to a first-time buyer?

Answer: My top two picks for new money in the August 2014 issue, which was published on Aug. 8, were Vermilion Energy Inc (TSX: VET, NYSE: VET) and RioCan REIT (TSX: REI, OTC: RIOCF).

Vermilion has a global oil and gas production footprint, while RioCan is a REIT with top-tier retail properties in Canada’s biggest cities and a growing presence in the US.

Question: Assuming there will be a 20 or even 30 percent downtown in the market, would it be better to hold or to sell a utility that has been held for 35 years, also assuming an average person’s tax rates?

Answer: Do I have to accept your premise of a 20 or 30 percent downturn?

Something like that will happen–history says it will–but the timing of such an even is impossible to pinpoint. And moves of that magnitude–though they do and will happen–are rare.

I happen to think we’re still in the middle stages of a new secular bull following the secular bear that started with the tech meltdown in 1999-2000 and ended in 2009-10.

Question: I’m aware of your changed position on Dream Office REIT (TSX: D-U, OTC: DRETF), but what about Dream Industrial REIT (TSX: DIR-U, OTC: DREUF)?

A general question on REITs: Should they be avoided due to an expected rise in interest rates someday?

Answer: I like Dundee Industrial REIT quite a bit. Industrial properties are seeing high occupancy rates and above-average growth in rents.

I think interest rates will go up…from here they almost have to. But I don’t think they’ll rise as fast or as high as in previous rate-hiking, rising-rate cycles.

Economic growth will drive rates. And economic growth will drive rents for REITs. They still are good holdings for investors seeking consistent income.

Question: David, you answered by questions with the buy recommendations. How about input on the telephone stocks, specifically AT&T Inc (NYSE: T), Verizon Communications Inc (NYSE: VZ) and T-Mobile US Inc (NYSE: TMUS)?

Answer: I personally own more of Verizon Communications than I do of anything else. I like the “big deal” it made to consolidate Verizon Wireless versus Comcast Corp’s (NSDQ: CMCSA) deal for Time Warner Cable Inc (NYSE: TWC) or AT&T’s for DirecTV (NYSE: DTV).

Verizon posted solid subscriber and wireless services growth for the second quarter.

I do think AT&T will benefit from DirecTV, it’s just that Verizon’s deal for Verizon Wireless consolidated a faster-growing exposure, wireless versus pay TV.

Comcast’s deal for Time Warner is all about broadband. I think there may be some regulatory issues before that deal is consummated.

I’m still a little shocked that Sprint Corp (NYSE: S) and T-Mobile US weren’t able to agree on terms, though a deal would have faced serious Federal Communications Commission/US Dept of Justice/Federal Trade Commission scrutiny.

Stick with the Big Three: VZ, T, CMCSA.

Question: Earlier in this web chat you listed Transurban Group as one of your top thre choices for new money. Your reasoning?

Answer: Transurban Group is an Australia-based owner/operator of toll roads, with its main assets concentrated in central business districts of Sydney and Melbourne. It also has significant assets in the Washington, DC, area.

Management continues to execute on expansion projects, and it’s benefited from public-private partnerships to improve and expand roadways Down Under. I like the distribution growth profile, which is supported by solid asset growth.

Question: What is your current analysis on Brookfield Real Estate Services (TSX: BRE, OTC: BREUF) and Exchange Income Corp (TSX: EIF, OTC: EIFZF)?

Answer: Brookfield Real Estate Services had a good second quarter, with royalties of CAD9.9 million up from CAD9.7 million a year ago. Cash flow from operations was up to CAD6.9 million, or CAD0.54 per share, from CAD6.6 million, or CAD0.51 per share, a year ago.

It’s a steady, not spectacular, business amid a still-strong Canadian real estate market. The broader issue to watch is the long-term trend of the growth of real estate agencies in the country. Growth isn’t specifically tied to booms in the cycle.

Exchange Income Corp had a good quarter too, with WesTower delivering a good result. This is a risky one, as indicated by the high yield, based on the debt that management’s taken on to grow the asset base. But the yield is good compensation for aggressive investors.

Question: How come you focus on certain MLPs in UF but not others?

Answer: We focus on MLPs that derive their revenue and their distributable cash flow from fee-generating activities and that aren’t overly sensitive to commodity prices.

There is no bright-line rule about how we add MLPs to the coverage universe. If you have one you’d like to see us cover, let me know and we’ll evaluate it.

Note that our colleagues at MLP Profits (www.MLPProfits.com) provide comprehensive coverage of the MLP space.

Question: From a timing perspective, every time the market gets concerned about rising interest rates, the first stocks hit are higher yielding stocks like utilities. The higher-yielding stocks decline faster than the S&P 500 during this period.

Isn’t that environment the best time to add to higher-yielding stocks such as utilities?

Answer: Yes, and that’s a great observation. I agree wholeheartedly.

That’s what I was getting at in my introductory words today about being prepared for what happens with the first rate increase: Have a list, have prices you want to pay (use limit orders) and build a portfolio of high-quality stocks at bargain prices.

Question: AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY) has been in the AE Portfolio Conservative Holdings for a long time. But progress has been slow. What are its future prospects?

Answer: AGL Energy got hit hard by the repeal of Australia’s carbon tax, as it would have received a couple hundred million dollars in compensation payments. It did get final approval for the AUD1.2 billion acquisition of Macquarie Generation assets, which should be immediately accretive to earnings.

Electricity demand has been trending down in Australia due to slower economic growth. But as activity picks up we should see a rebound.

The dividend is well supported, and management did boost the final dividend for fiscal 2014 by 4.4 percent.

Question: What are the negative tax implications on KMP and EPB if held in an IRA? Could you provide more insight?

Answer: For investors who hold KMP in retirement accounts, when an MLP is sold the portion of the proceeds that’s taxed as ordinary income in a taxable account could be liable for UBIT (unrelated business income tax).

If an MLP has been held in an IRA for many years, this tax liability could be substantial.
We’re not tax experts. Please consult your tax advisor and/or your IRA custodian for advice specific to your situation.

Question: I have recently inherited shares of KMP with a stepped up cost basis as of July 28, 2013. I do not know how long my deceased father owned the stock. Do you know if the tax consequences will apply only since I’ve owned it? Should I sell it?

Answer: Yes, you will benefit from the July 28, 2013, stepped-up basis. But any gain you have from that point to when the exchange is effected (you sell your units or you collect the 2.1931 KMI shares plus $10.77 in cash) you will have a taxable event.

Question: What will higher interest rates do to utility stocks’ and MLPs’ overall total returns?

Answer: The market may react negatively, though MLPs largely avoided the worst of the mid-2013 “taper tantrum” that hit utilities and REITs.

It will hurt companies that have debt to roll over by increasing borrowing costs.

But I don’t expect rates to rise much more than the upper bound of the recent, long-term trend channel, which is still low in an historical context.

Question: How will the KMP deal affect my holdings in a regular IRA? Aren’t all transactions in an IRA treated as regular income when they’re sold or converted?

Answer: You may have to pay–based on the length of time you’ve held it in your IRA and the size of your position–what’s called “unrelated business income tax” (UBIT).

If your IRA invests in an MLP, it becomes a limited partner in that MLP, just as you would if you invested directly.

Because an MLP, like all partnerships, is a pass-through entity (no tax paid by the partnership, all tax items flow through to the limited partners/shareholders, who pay tax on their share), the partners are treated by the tax code as if they are directly earning the MLP’s income.

Thus, as a partner in the MLP, the IRA or other account is considered to be “earning” its share of the MLP’s business income. The MLP’s business is not related to the retirement account’s tax-exempt purpose; therefore the IRA’s share of the MLP’s income is treated as UBTI and is taxed accordingly.

Question: Thoughts on Exelon Corp (NYSE: EXC)? It’s down about $5 per share from its high in early June.

I’m down 20 percent since taking a position in January 2011 (not including dividends received). I’m wondering if I should scale out and put money to better use elsewhere. Or is it a solid long-term hold?

Answer: Exelon’s deal for Pepco Holdings Inc (NYSE: POM) is positive in the sense that it boosts the share of revenue the company will get from regulated activities.

The primary weakness of late has been the merchant power market. And Exelon’s nuclear fleet hasn’t benefited nearly as much during this turn away from coal due to the shale gas revolution, which created a cheaper, almost-as-clean fuel alternative for power generators.

I rate the stock a hold.

Question: Do I need to worry about another dividend cut from Lightstream Resources Ltd (TSX: LTS, OTC: LSTMF)?

Answer: Lightstream Resources is particularly sensitive to oil prices.

It’s selling assets to generate cash to pay down debt. At the same time its production is stagnant. So if oil prices are going lower, it puts extra pressure on cash flow.

Management had to revise production guidance for 2014 downward due to unexpected operational problems too. So, yes, I’d say another cuts something to be mindful of.

Question: What do you think will be the consequences to Duke Energy shareholders of the Dan River coal ash spill and new legislation (passed yesterday by North Carolina General Assembly) regulating coal ash clean-up by Duke and other utes in North Carolina?

Answer: I think the ultimate cost burden will be easily absorbed by an entity as large as Duke Energy is. The impact of the legislation is still unclear. All Duke has to do is come up with a plan for next steps in coal-ash management.

The stock was down today, but so were broader utility indexes.

I don’t know yet for certain what the dollar cost will be. But I’m pretty sure Duke will be able to handle it. And I don’t think investors will be inordinately harmed.

Question: Hello, David, and thanks for hosting these chats. What is your opinion of Atlantic Power Corp (TSX: ATP, NYSE: AT) and IBI Group Inc (TSX: IBG, OTC: IBIBF)? They both seem to be coming back from the dead. Any hope for these troubled companies?

Answer: I continue to think that the best hope for Atlantic Power is for the company to be acquired by a bigger, better capitalized entity.

IBI Group had pretty good second quarter numbers. It’s selling one of its units and renegotiating a credit facility. That should help the balance sheet and set it up for more progress.
Thanks for your question.

Question: Thank you for the great research. Do you have an update on Liquor Stores NA LTD (TSX: LIQ, OTC: LIQSF)?

Answer: Liquor Stores reported 6.3 percent overall sales growth and 4.4 percent same-store sales growth for the second quarter, very encouraging numbers for a company that had been struggling.

Management has an aggressive plan in place to get things moving in a positive direction. I think this is a sign of progress on that front. And improving economic conditions in Kentucky are helpful as well.

Question: What are the top four or five Canadian stocks for conservative income-oriented US investors that you now consider to be fairly or undervalued?

Answer: Bird Construction, Brookfield Renewable Energy Partners LP (TSX: BEP-U, NYSE: BET), Bank of Nova Scotia (TSX: BNS, NSYE: BNS), RioCan REIT and Innergex Renewabe Energy Inc (TSX: INE, OTC: INGXF).

Question: Any plans yet to get a buddy for your Jack Russell-Chihuahua mix? Thanks for the session. Take care

Answer: Yes, we have a great Golden Retriever breeder, and we’re in line for a late fall litter. Thanks for asking. And thanks for joining us today.

Question: Thank you, David, for all of the insight. Hank on the West Coast.

Answer: Alright, Hank. As an Orange County, CA-bred, San Diego-educated guy I’m only a little jealous. Thanks for joining us today.