Investing in the US does occasionally have a downside. As many have discovered the past few years, a falling US dollar depresses the Canadian dollar value of US sales. An appreciated loonie also makes Canadian goods less competitive against those of US rivals.

Meanwhile, a weak US economy can stall growth with lost customers and rising defaults on receivables. And some businesses have run afoul of the law as well, notably former Portfolio pick Arctic Glacier Income Fund (TSX: AG-U, OTC: AGUNF). See the Dividend Watch List in the Tips on Trusts section for more.

Both High Yields of the Month—AG Growth Fund (TSX: AFN-U, OTC: AGGRF) and Energy Savings Income Fund (TSX: SIF-U, OTC: ESIUF)—have a heavy focus on the US, giving them a hefty 2011 tax advantage. Unlike many rivals, however, both are also successfully navigating the current hardships of the US market, keeping growth on track and dividends rising.

Best of all, both trusts have the pieces in place to generate double-digit profit growth well past 2011. And both are cheap, with high single-digit yields and low multiples to book value, sales and cash flow, making them bona fide takeover targets as well.

Agricultural equipment seller AG Growth started the year with a major logistics problem. Its Westfield manufacturing facility was dramatically undersized for rapidly growing demand. The result was a costly shutdown to boost capacity, which triggered a dramatic shortfall in cash flow for both the fourth quarter 2007 and first quarter 2008.

With its payout ratio ballooning to 226 percent in the fourth quarter and 163 percent in the first, AG’s share price plummeted from the mid-30s to the low-20s, as investors anticipated a distribution cut. Management, however, begged to differ, affirming its commitment to the current rate and stating that cash flow would rebound sharply once the Westfield repairs were complete.

As it turned out, that’s exactly what happened when AG announced its second quarter results. Thanks in large part to a dramatic increase in output at Westfield, second quarter revenue soared 60.3 percent and cash flow surged 35 percent from year earlier levels. Westfield truckloads of equipment shipped rose 47 percent, as demand for both the company’s portable and stationary grain handling equipment continues to hit new records.

Just as energy services companies don’t depend directly on the level of oil and gas prices, AG’s profit doesn’t fluctuate with grain prices. Rather, it depends on the level of activity in America’s grain belt. And with global food demand soaring and agricultural commodity prices high, that remains extremely robust.

Better, despite a noticeably slowing US economy, those favorable trends look set to continue. In fact, AG’s order backlog continues to reach new records, thanks to an increase in on-farm storage, successive large corn harvests, favorable crop conditions and depleted inventory levels throughout the Fund’s distribution network.

Management has also been very successful this year cutting costs and improving profit margins. Gross margin for the second quarter was negatively impacted by integration issues at the newly added Edwards/Twister division, which resulted in lower than expected labor productivity. Nonetheless, they were still within a percentage point of last year’s levels, before the Twister addition. And management states its initiatives to boost margins further have been “largely successful.”

As a result of these advances, AG’s second quarter payout ratio tumbled all the way to 55 percent. That induced management to boost the distribution 21.4 percent, and more than a few executives have stepped up their buying of the trust’s units as well.

Looking ahead, much will depend on the continued good health of North American agriculture and the trust’s ability to keep its customers supplied. Management is putting its current good fortune to better use, however, diversifying its product line and developing new markets, including Russia and Kazakhstan. That promises to reduce the trust’s exposure to a possible North American production slowdown. Meanwhile, the company is also tapping into the biofuel production market, which promises to be strong for many years due to the growing desire for US energy independence and cleaner air.

Management’s current projection for 2011 is a rather full tax rate in Canada, but “a similar after tax dividend” based on its current low payout ratio. AG Growth Trust is a low-risk, high-yield, high potential way to play North America’s agriculture boom and a buy up to USD32.

Energy Savings Income Fund also anticipates a rather full tax rate in Canada and anticipates converting to a corporation, barring a change in the law. But the company also looks to a low payout ratio, expectations for double-digit profit growth the next few years and the tax advantage of US operations—which will actually owe little tax as long as they grow rapidly—to keep its “base distribution” steady after 2011.

Unlike AG, Energy Savings is “asset light.” Growth depends on locking in residential and small commercial customers into five-year contracts to purchase electricity and natural gas. The energy sold is also secured under long-term contracts, mostly with North America’s “Big Five” energy retailers, which include subsidiaries of Super Oils BP and Shell, Centrica, Constellation Energy and Bruce Power.

Growth is basically driven by the number of customers Energy Savings is able to add from quarter to quarter. That, in turn, is spurred by the number of qualified sales and marketing personnel it can bring aboard and retain.

Ironically, the weak US economy affects the trust in two very contradictory ways. On the negative side, though the company isn’t directly exposed to bad debt expense, a weak economy does increase customer losses. On the plus side, economic weakness makes it easier to hire first-rate personnel and boost customer growth.

The result has been that Energy Savings has been able to weather the economic slowdown very effectively thus far. As for exposure to the US dollar, the trust has the option of hedging receivables. But with management basically reinvesting all of its available cash flow in the US, there’s been no real economic need to do so. Nor will there be, at least until the trust changes its US focus from growth to harvesting cash. And that’s unlikely for “at least the next two to three years,” according to CEO Ken Hartwick.

Energy Savings is currently making a major push into the unregulated Texas market, which Hartwick likens to Alberta in terms of economic health. It also has an application with regulators to ply its services in Massachusetts.

Earlier this year, the company faced charges in two of its US states, Illinois and New York, that its business practices were unfair and failed to safeguard customers. It’s since settled the dispute in New York, inking an amicable deal with Attorney General Andrew Cuomo that should prevent future problems.

Negotiations in Illinois are still ongoing, though according to Hartwick the tenor has calmed dramatically as natural gas utility rates have risen well above the fixed rates billed by Energy Savings. Until there’s a settlement, there will be some uncertainty overhanging the Illinois operation. At this point, however, potential for real downside looks limited.

Meanwhile, the company’s green offerings continue to enjoy solid success on both sides of the border as well as sound regulatory backing. Under these, Energy Savings ensures all energy purchased by customers will either come from renewable energy or will be offset by carbon credits purchases on the Chicago Climate Exchange. Some 30 percent of the trust’s customers have opted for some sort of green plan, which Mr. Hartwick believes will become ever-more ubiquitous in coming years, making it “impossible” to operate without such an offering.

After a very strong 2007, Energy Savings shares have had a rough 2008, largely on the perception that it would suffer from a weakened North American economy, rising energy costs and growing regulatory challenges. The payout ratio did rise to 111 percent in the seasonally weak fiscal first quarter of 2009 (the trust’s fiscal year ends March 31), including marketing expenses. But underlying strength in margins and continued robust US growth paints a picture of long-term strength and sustainability, always management’s key goal. And sales, gross margins and distributable cash flow posted healthy increases from last year’s levels.

Meanwhile, the trust last month purchased all the residential and commercial customer contracts of CEG Energy Options of British Columbia, an otherwise healthy entity dragged down in this summer’s bankruptcy of SemCanada. The low $1.8 million purchase price offsets the negative position of certain of the contracts, making it immediately accretive to Energy Savings’ bottom line. The deal also provides a base of new potential customers to mine when the contracts’ average 36-month life expires.

Insiders have stepped up their buying of the shares in recent months. Those who’ve yet to take a position in Energy Savings Income Fund should do the same, all the way up to our target USD18.

Note that Energy Savings’ yield and distribution shown in the How They Rate table include the special 41 cents Canadian distribution paid in the last 12 months, as well as the regular monthly rate of 10.333 cents Canadian. Management intends to pay special distributions when warranted, in order to keep the base rate steadier. The base rate was also increased 2.5 percent last month, bringing the 12-month rate of growth to 11 percent.

For more information on AG Growth and Energy Savings, 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 OTC 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 menu item “Income Trust Tax Guide.”

As is customary for virtually all foreign-based companies, the host government—in this case Canada—withholds 15 percent of distributions paid by AG Growth and Energy Savings 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 the US, which aren’t taxed under the new act.

Distribution policy is entirely up to management. But both trusts have indicated they intend to remain big dividend payers well after 2011. In fact, both have indicated they intend to pay at least at their current rate, as low payout ratios and strong growth will allow them to absorb the additional tax burden.