The riskier of the two, Boralex’s shares currently yield more than 14 percent and sell for just 87 percent of book value, after plummeting 46 percent over the past 12 months. As reported here, the catalyst for the decline was simply underperformance of the income fund’s assets.

All of the income fund’s cash flow comes from 10 power plants (190 megawatts total capacity) in the US and Canada that are operated by Boralex (TSX: BLX). The parent owns 23 percent of income fund units and collects a management fee for running the facilities. Roughly half output comes from hydroelectric facilities, another 30 percent from wood-residue thermal power stations and the rest from natural gas-fired cogeneration plants.

Beginning in the second half of 2007, the hydro facilities began to suffer from a lack of water flows. That, more than anything else, triggered a shortfall in fourth quarter cash flow. But it was challenges at the Dolbeau, Quebec, wood-residue facility and concerns about the terming out of currency hedges for US cash flows that induced management to reduce projected cash flows from the fund’s assets and finally to trim the distribution 22 percent.

Since then, Boralex has basically traded in a range around USD5, as investors have waited to see if the reduced distribution would hold or if more troubles lie ahead. One key worry concerns the Dolbeau plant, where the slowdown in the forestry sector is having an impact on supplies of wood residue. The trust has also been locked in a dispute with AbitiBowater, which has sued to terminate the contract to operate the Dolbeau plant.

The bad news is there are still issues to be resolved on both fronts. The good news is Boralex and AbitiBowater are working out a solution. As for Dolbeau itself, plant output held steady, falling only a little more than 6 percent versus year-earlier levels despite fuel supply challenges and being out of service eight days. Revenue from the plant actually ticked up, while cash flow rose 21.4 percent because of a favorable court decision that refunded some municipal taxes.

A favorable resolution to Dolbeau’s challenges remains key to Boralex shares’ ability to recover the past year’s losses. More important, however, it looks much less critical to the fund’s survival or to its payout in light of solid first and now second quarter results.

The natural gas cogeneration operation was the star of the most recent quarter, boosting revenue 34 percent as electricity production rose 10 percent and steam output by 4.9 percent. Profits were further lifted by higher power prices, operating cost controls and the ability to pass through fuel expenses.

Boralex’s overall revenue rose 7.1 percent in the first quarter, powering a 30 percent jump in cash flow from operating activities. That took the trust’s payout ratio down to just 65.6 percent, not including foreign exchange losses.

The most impressive thing about the income fund’s results is the gains were cheap despite hydro plants’ output, revenue and cash flow being relatively flat. And at the now-reduced payout ratio, the trust was able to add some CAD5.1 million to its cash position, largely restoring its financial strength to last year’s solid level.

Since the distribution cut, I’ve recommended sticking with Boralex Power Income Fund on two premises. First, the share price already reflects another cut of roughly 20 percent, minimizing downside on that score. Second, the reduced payout should hold. My bet is the market will ultimately recognize the trust’s reduced dividend is solid and will push Boralex shares back to the USD7-to-USD8-per-share range.

That looks a lot closer to becoming reality than it did just a few months ago. We may still have to wait some months for a full recovery and uncertainty remains, particularly at Dolbeau. That’s why I’m keeping the trust in the Aggressive Portfolio rather than the Conservative Portfolio with my other power producer trusts.

For those who can take on the risk, however, the distribution will reward our patience. Boralex Power Income Fund is a definite hold for those already in it and a buy up to USD6 for those who aren’t.

In contrast to Boralex, Pembina Pipeline Income Fund’s assets have had few problems. In fact, they’ve consistently run well since my initial recommendation four years ago.

That hasn’t kept the shares immune from market ups and downs, particularly in recent weeks. But as of this writing, at least, they’re still up for the year. More important, management continues to put the pieces in place for further robust growth in cash flow and distributions, a surefire formula for a higher share price down the road.

Like first quarter results, second quarter earnings were yet another study in steady performance for challenging times. Net earnings rose 18.6 percent, and cash flow from operations surged 61.6 percent above year-ago quarterly totals, riding a 43.6 percent jump in revenue and a rise in operating income margins from 67.1 percent to 68.4 percent.

Throughput at Pembina’s conventional energy pipelines dipped 2.3 percent because of a series of onetime events beyond its control, including seasonal turnarounds, road bans, weather-related factors and outages at a third-party owned refinery. Revenue nonetheless rose 4.7 percent, as several systems’ output exceeded expectations. That held overall earnings at the division relatively flat for the quarter and set the stage for significant growth in the second half.

The trust’s midstream and marketing business is designed to leverage the conventional pipe assets by providing a range of services for them. That division continued its recent record of success with a more than doubling of revenue, adding up to a 65.9 percent jump in net operating income. Pembina expects to augment results in the second half with the addition of a new merchant truck terminaling services operation on its Peace System and continues to look for similar low-risk expansion opportunities to leverage assets it knows best.

Important, this division doesn’t assume any material commodity price or speculative risk. Rather, it looks for opportunities to generate fees, which it’s able to do with relatively little capital cost.

From a capital spending perspective, Pembina’s biggest endeavor in recent years has been expanding its asset base in the oil sands region. The trust is already the exclusive transportation network operator for the Syncrude partnership.

Syncrude is a venture by Super Oils and the world’s largest oil sands producer. Its trading stock is Canadian Oil Sands Trust (TSX: COS.UN, OTC: COSWF). The more Syncrude expands output, the more Pembina grows and the more fees it generates for its efforts.

Oil sands pipeline capacity is fully contracted, and the trust’s contract with Syncrude provides for full recovery of operating expenses. That makes for exceptionally steady cash flow that’s steadily augmented over time as the trust grows its asset base.

Last month, Pembina grew its oil sands business by another quantum leap, completing the Horizon Pipeline system for another industry giant, Canadian Natural Resource. Like the Syncrude arrangement, the Horizon deal is an exclusive transportation service contract, in this case with a 25-year life span. Management expects the pipeline–which began operating last month–to generate an additional CAD45 million for net operating income annually.

The first fruit of this growth for shareholders is the additional 8.3 percent boost in Pembina’s distribution, beginning with the Sept. 15 payment. That continues management’s welcome tradition of consistently sharing its rising income stream with investors. It also marks the fourth significant dividend boost since Halloween 2006, a clear sign management intends to keep faith with income investors no matter how it’s ultimately organized.

As for financial strength, Standard & Poor’s upgraded the company’s rating to BBB+ and senior secured rating to A- in late July. Virtually all capital spending is for asset growth, demonstrating Pembina’s ability to exist and even grow on its own resources alone. Another measure of strength: Its efforts to clean up a 125-barrel oil spill on one of its pipelines are “not expected to have a material impact” on its financial results.

You won’t find many businesses more solid that this one, particularly not with demonstrated growth potential and paying a 9 percent yield. Pembina Pipeline Income Fund is a buy up to USD18 for those who haven’t yet taken a position.

For more information on Boralex and Pembina,  visit the How They Rate Table. Click on the “.UN” symbol to go to the Web site of our Canadian partner MPL Communications for press releases, charts and other data. These are substantial companies, so any broker should be able to buy them, either with their Toronto or over-the-counter symbols. Ask which way is cheapest.

Note that both trusts’ dividends are considered qualified for tax purposes in the US. Tax information to use as backup for filing them as qualified–whether or not there are errors on your 1099–is listed on the Canadian Edge Web site under the Income Trust Tax Guide.

Also, as is customary for virtually all foreign-based companies, the host government—in this case Canada—withholds 15 percent of the trusts’ distributions to US investors at the border. This tax can be recovered by filing a Form 1116 with your US income taxes. The amount of recovery allowed per year depends on your own tax situation, though unrecovered amounts can be carried forward to future years.

Both trusts will be subject to trust taxation beginning in 2011. Both, however, should be able to mitigate much of the prospective burden, thanks to reliance on cash flows from large, fixed, depreciable assets. Great Lakes Hydro (TSX: GLH.UN, OTC: GLHIF), for example, has estimated a future impact of about 14 percent on cash flow from the tax.

At a similar rate, both Boralex and Pembina would be able to maintain current distributions, given current payout ratios. Distribution policy is, of course, entirely up to management. But both trusts have indicated they intend to remain big dividend payers well after 2011.