Between AltaGas Ltd (TSX: ALA, OTC: ATGFF) and fellow July Best Buy Vermilion Energy Inc (TSX: VET, NYSE: VET) there’s just a single dividend cut, one that came in the aftermath of the 2008-09 global financial, economic and market meltdown and in direct consequence of the Canadian government’s imposition of an entity-level tax on so-called specified investment flow-throughs, or SIFTs.

Aggressive Holding Vermilion Energy has been a member of the CE Portfolio since August 2004, or the second issue of the advisory. Conservative Holding AltaGas is only slightly later to the party, having joined the Portfolio in the February 2005 issue.

Both are trading at attractive levels based on recent dividend and asset growth.

It may come as some surprise that the one cut, in the summer of 2010, was by AltaGas, whose payout is backed by a collection of fee-generating assets, the health of which isn’t tied to ups and downs of commodity prices.

AltaGas paid its last distribution as an income trust of CAD0.18 per unit on June 30, 2010, within weeks of unitholders’ approving the plan of arrangement that made it a corporation. On Aug. 16, 2010, the new AltaGas made its first monthly dividend payment of CAD0.11 per share.

In April 2013 AltaGas announced, along with first-quarter results, its third dividend increase since its corporate conversion, taking its monthly rate to CAD0.125 per share or CAD1.50 on an annualized basis. That’s up 13.6 percent from CAD1.32 in August 2010.

As for Vermilion, a producer of oil and gas, its ability to endure one of the most volatile periods in modern market history is based on geographically diversified production and a vigilant control of leverage.

In November 2012 management raised the monthly dividend rate by 5.3 percent to CAD0.20, effective with the February 2013 payment. It was the first dividend increase for the company since the January 2008 payment of CAD0.19, which was declared in December 2007 and represented an 11.8 percent increase over the prior rate of CAD0.17.

Forty percent of Vermilion’s first-quarter production volume was Brent-based crude, while 18 percent was high-netback European gas.

Vermilion’s Brent-based crude realized an average price of USD113.34 per barrel, generating a premium of USD25.13, or nearly 30 percent, over the Edmonton Sweet Index, which reflects pricing for Canadian light crude, and USD18.18 per barrel, or nearly 20 percent, to West Texas Intermediate.

The company’s Netherlands natural gas production received an average price USD10.09 per thousand cubic feet (mcf), a premium of USD6.76 per mcf, or more than 200 percent, compared to an average first quarter price of USD3.33 per mcf for AECO natural gas in Canada.

Vermilion’s significant exposure to international pricing for its high-netback liquids and European gas drove fund flows from operations growth of 15 percent quarter over quarter and outpaced production growth of 7 percent.

Vermilion has no debt maturities until 2016, including a 6.5 percent, CAD225 million bond maturing in February of that year and a CAD1.2 billion revolving credit facility of which approximately CAD500 million is currently drawn that matures in May.

The ratio of debt-to-annualized cash flow is roughly 1-to-1, among the best in the industry. And Vermilion has consistently posted a payout ratio below 50 percent, allowing it to fund much of its capital program with cash flow.

Vermilion reported average production of 38,707 barrels of oil equivalent per day (boe/d) during the first quarter of 2013, up from 36,265 boe/d in the fourth quarter of 2012.

Funds from operations were CAD163.6 million, or CAD1.65 per share, in the first quarter of 2013, up 15 percent from CAD141.7 million, or CAD1.43 per share, sequentially and up 8 percent from CAD151.1 million, or CAD1.56 per share, a year ago.

Funds from operations covered the CAD0.59 per share in total dividends paid during the quarter by 2.79-to-1, the equivalent of a payout ratio of 35.7 percent.

Management reported continued production growth in its Cardium light oil play in Western Canada, and the company started up horizontal development with the drilling of two gross wells in the Mannville liquids-rich gas play. Vermilion also added to its position in the Duvernay liquids-rich natural gas resource play. The high-potential Corrib project in Ireland is on track for first gas in late 2014 or early 2015.

Vermilion boosted the low end of its 2013 production guidance, making the new range 39,500 to 40,500 boe/d versus 39,000 to 40,500 previously.

Vermilion also began trading on the New York Stock Exchange on March 12, 2013, under the ticker symbol VET. This move will likely help broaden the shareholder base and provide additional liquidity.

The share price on the NYSE dipped to USD47.73 on June 24 but has since rebounded to USD49.18. The stock generated a negative total return of 4.31 percent during the first six months of 2013.

Vermilion Energy, currently yielding 4.7 percent, is a strong buy under USD52.

AltaGas, meanwhile, closed at an all-time high of CAD40.21 on the Toronto Stock Exchange (TSX) as recently as May 21, 2013. The share price on the TSX hit CAD35.35 by June 24 but has since rebounded to CAD36.75.

That’s about USD35.01 based on the prevailing US dollar-Canadian dollar exchange rate, which means AltaGas is trading below our USD36.50 buy-under target.

Management continues to add natural gas processing, power and regulated utility assets that add to cash flow and earnings and provide support for further dividend growth

In 2012 AltaGas acquired SEMCO Holding Corp, which owns natural gas utilities in Michigan and Alaska, for USD1.1 billion. And last month it finalized a deal to buy Blythe Energy LLC, which operates a 507 megawatt natural gas-fired power plant in Southern California, for USD515 million.

These utility and power assets should provide steady streams of cash flow as AltaGas’ revenue mix evolves; power and utility businesses are on track to contribute more than 60 percent of earnings by 2015, up from 45 percent in 2011.

AltaGas reported an 18 percent increase in normalized earnings per share to CAD0.53, up from CAD0.45 a year ago. Normalized earnings before interest, taxation, depreciation and amortization (EBITDA) for the first quarter were up 59 percent to CAD145.8 million from CAD91.6 million, as SEMCO delivered over CAD96 million in the first two quarters of ownership.

Normalized funds from operations, meanwhile, increased to CAD122.3 million, or CAD1.16 per share, from CAD74.7 million, or CAD0.83 per share, in the first quarter of 2012. The first-quarter payout ratio based on normalized funds from operations was 31 percent, with a coverage ratio of 3.22-to-1.

First-quarter 2013 interest expense was CAD24.6 million, up from CAD12.8 million due to a higher average debt level of CAD2.7 billion in first quarter 2013 compared to CAD1.4 billion in first quarter 2012, partially offset by lower average borrowing rate of 4.7 percent compared to 5.5 percent.

AltaGas’ balance sheet remains strong, with debt-to-total capitalization of 57 percent at the end of first quarter. Following the closing of the Blythe acquisition the ratio will decline to 54 percent.

The company continues to see strong support in credit markets, as it finalized a new CAD300 million credit commitment to support the Blythe acquisition and on April 12 issued a two-year, USD175 million floating-rate note at LIBOR plus 79 basis points.

Management, along with Japan-based partner Idemitsu Kosan Co Ltd (Japan: 5019, ADR: IDKOY), is currently evaluating a floating liquefied natural gas (LNG) platform off the coast of Western Canada that would, at significantly lower cost, unlock North American gas for export to Asia.

AltaGas and Idemitsu announced in January 2013 plans to build a terminal to begin exporting LNG from British Columbia as soon as 2016, using an existing AltaGas pipeline connecting to major natural-gas reserves inland. This pipeline is the only gas pipeline carrying output from resource plays in northeast British Columbia to the Pacific coast.

It’s also a far simpler proposition to build an offshore platform than it is to construct a liquefaction terminal on land, so AltaGas’ project would likely deliver first gas ahead of most of the other projects that are in various stages of planning and/or construction.

Getting there first is an important part of the gas-to-Asia equation, as long-term supply-and-demand analysis indicates that there probably won’t be enough uptake across the Pacific to satisfy the aspirations of many North American projects’ sponsors.

AltaGas management has said a final decision on the project will come by the end of 2013. The key will be finding buyers in Asia.

Other projects that will boost earnings and cash flow include the British Columbia-based Forrest Kerr run-of-river hydro project, which is on track for startup in the first quarter of 2014, as well as BC-based hydro projects McLymont Creek and Volcano Creek, which will come online by late 2015.

These plants will operate under 60-year, inflation-indexed power-purchase agreements with the Government of British Columbia.

These hydro projects and the Harmattan and Gordondale gas-processing projects will underpin dividend growth going forward. AltaGas is a strong buy under USD36.50.

For more information on Vermilion Energy, go to How They Rate under Oil and Gas. AltaGas is tracked under Energy Infrastructure. Click on their US symbols to see all previous writeups in Canadian Edge and Maple Leaf Memo.

Click on the Toronto Stock Exchange (TSX) symbol to go to their Google Finance pages for a wealth of information, ranging from news releases to price charts. Click on their names to go directly to company websites.

Both are mid-sized companies. Vermilion Energy’s market capitalization comes in at around CAD5.3 billion, while AltaGas’ is CAD4.4 billion. Both stocks have plenty of liquidity on both sides of the border, both in TSX and US-listed symbols.

Vermilion Energy, as of March 2013, trades on the New York Stock Exchange under the symbol VET.

AltaGas trades on the US over-the-counter (OTC) market under the symbol ATGFF.

Both companies have decent coverage on Bay Street and Wall Street. Vermilion Energy has 18 analysts tracking it, with 13 rating the units a “buy” and four “hold” with one “sell.”

The average 12-month target price, based on forecasts from 16 of the 18 analysts covering the stock, is CAD56.66. This implies upside from Vermilion Energy’s July 3, 2013, closing price of CAD52.09, not including dividends, of 8.8 percent.

AltaGas is covered by nine analysts, six of whom rate the stock a “buy.” Two rate it a hold, while one rates it a “sell.” The average 12-month target price, based on forecasts from eight of the nine analysts covering the stock, is CAD39.88.

Based on AltaGas’ July 3, 2013, closing price of CAD36.87, upside from here according to Bay Street analysts is about 8.2 percent, not including dividends.

As is the case with all stocks in the Canadian Edge coverage universe, you get the same ownership whether you buy in the US or Canada. These stocks are priced in and pay dividends in Canadian dollars. Appreciation in the loonie will raise dividends as well as the value of your shares.

Dividends paid by both companies are 100 percent qualified for US income tax purposes. Both stocks’ dividends are taxed at the now-permanent Bush-era rates of 5 percent to 15 percent for investors’ first USD450,000 a year of income for couples and USD400,000 for single filers. Above that the maximum tax rate is 20 percent.

Canadian investors enjoy favorable tax status for both companies. For US investors, dividends paid by both Vermilion Energy and AltaGas into IRAs aren’t subject to 15 percent Canadian withholding tax, though they are withheld at a 15 percent rate if held outside of an IRA.

Dividend taxes withheld from US non-IRA accounts can be recovered as a credit by filing a Form 1116 with your US income taxes. The amount of recovery allowed per year depends on your own tax situation.