The first six months of 2014 have been good for the Canadian Edge Portfolio.

The 39 stocks and funds that currently comprise the Portfolio posted an average total return in US dollar terms from Dec. 31, 2013, through June 30, 2014, of 14.9 percent.

The Canadian dollar ended 2013 at USD0.9414. As of June 30, 2014, the loonie was valued at USD0.9373, a decline of 0.4 percent. This currency fluctuation was basically neutral as far as US investors long dividend-paying Canadian equities are concerned.

Let’s establish the baselines.

The S&P/Toronto Stock Exchange Composite Index, the main Canadian benchmark, generated a total return–capital gain or loss plus dividends paid–in US dollar terms of 12.5 percent for the first half of the year. The S&P 500 Index was up 7.1 percent, the MSCI World Index 6.6 percent.

The breakdown by Portfolio segment is as follows.

The 17 Aggressive Holdings posted an average first-half total return of 19.8 percent. The 19 Conservative Holdings posted an average total return of 10.7 percent. The three Mutual Fund Alternatives were up an average of 13.2 percent.

Note that we’ve adjusted for holding period.

Performance data for ShawCor Ltd (TSX: SCL, OTC: SAWLF) and PHX Energy Services Inc (TSX: PHX, OTC: PHXHF) have been calculated from the dates the stocks were added to the Aggressive Holdings, Feb. 7, 2014, for ShawCor, June 6 for PHX. We’ve sold no stocks from the Aggressive Holdings yet in 2014.

The 19 Conservative Holdings have been static all year, as has the lineup of funds, with no additions or subtractions.

Leaders

ShawCor’s total return from Feb.7 through June 30 led the way among Aggressive Holdings at 49.4 percent, reflecting the company’s strong position in its Energy Services subsector.

ShawCor is in play for a significant share of the large projects that are currently in the bid stage. Management is also pursuing organic growth and acquisition initiatives in the pipeline services and composite pipe businesses.

Management announced a 20 percent dividend increase along with first-quarter results.

With a backlog of CAD642 million as of Mar. 31, 2014,up from CAD617 million as of Dec. 31, 2013, and the value of outstanding bids exceeding CAD800 million, ShawCor is well positioned to post solid growth for the long term. ShawCor is a buy under USD52.

Lightstream Resources Ltd (TSX: LTS, OTC: LSTMF) posted a half-year total return of 43.4 percent, as management’s efforts to reduce debt via non-core asset sales in the aftermath of a steep, 50 percent dividend cut in November 2013 have encouraged investors.

Lighstream remains a speculative turnaround play only for the most aggressive CE subscribers, however, as it must sell producing assets while maintaining output at a level sufficient to generate cash flow that will cover its debt-reduction plan as well as its ongoing dividend commitment. And management must also lay the foundation for future production growth per share.

Lightstream hit a 12-month closing high of CAD9.03 on the Toronto Stock Exchange (TSX) on June 20, 2014, but has since come way back, to CAD7.81 as of July 10. This latest decline corresponds with a sizeable retreat for oil prices from their 2014 highs.

Lightstream, which is particularly sensitive to ups and downs of oil prices while it’s selling producing assets, remains a buy under USD8 for very aggressive investors.

Enerplus Corp (TSX: ERF, NYSE: ERF) is the example Lightstream would like to follow. The stock generated a total return of 42.3 percent for the first half of 2014 following a 50.1 percent gain for 2013.

Enerplus cut its dividend by 50 percent in June 2012, a response to a steep decline for natural gas and oil prices and the absence of hedges to protect against commodity downside. Management used the cash saved to accelerate its efforts to diversify its production base away from natural gas toward natural gas liquids (NGL) and light oil.

And these efforts have paid off. Production growth for the first quarter was 13.3 percent year over year and 5 percent on a sequential basis, with gas accounting for 56 percent of output. Enerplus reiterated its annual average production forecast of 96,000 to 100,000 boe/d, though management expects to track toward the high end of the range due to the outperformance in the Marcellus Shale.

Balance-sheet repair continues, with higher funds from operations (FFO), in addition to proceeds from recent sales of non-core assets, helping management pay down debt. Debt-to-trailing 12-month FFO improved to 1.3 times as of March 31, 2014, from 1.4 times as of Dec. 31, 2013.

Enerplus is a textbook example of management making the most of an unfortunate dividend cut, putting the savings to work to make the operation more efficient and getting back to production growth. The stock price has been on a great run since mid/late 2012. And the production growth profile suggests good things ahead.

Enerplus is now a buy under USD24.

Magna International Inc (TSX: MG, NYSE: MGA), which we added to the Aggressive Holdings in the December 2013 issue, posted a total return of 32.4 percent during the first six months of 2014, as the rebound in the global automotive market continued.

With North American auto sales remaining in an uptrend and Asian sales showing signs of continuing strength, the parts and components producer is well-placed to benefit from a durable recovery in Europe. Magna is a buy under USD100.

Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF), a March 2014 Best Buy recommendation, was up 25.3 percent. The lowest-cost natural gas producer in North America benefitted from stronger commodity prices.

And its control of land, production and processing put it in a unique position to generate stable cash flows and consistent dividend growth for the long term. Peyto is a buy under USD38.

Fellow Oil and Gas names Vermilion Energy Inc (TSX: VET, NYSE: VET), at 20.9 percent, and Crescent Point Energy Corp (TSX: CPG, NYSE: CPG), at 18.1 percent, round out the list of extraordinary outperformers among Aggressive Holdings.

Parkland Fuel Corp (TSX: PKI, OTC: PKIUF) also beat the S&P/TSX Composite, with a total return of 13.9 percent.

As for the Conservative Holdings, waterheater rental and submetering services company EnerCare Inc (TSX: ECI, OTC: CSUWF) led the way with a total return of 25.9 percent for the first half of the year. EnerCare, continuing to benefit from new provincial legislation in Ontario limiting the activities of door-to-door salespeople in its industry, is seeing dramatic improvement in attrition rates in its waterheater rental business, and its submetering unit is posting impressive customer-growth numbers.

Management recently announced that rental customer attrition declined by 21 percent in the second quarter and is down 20 percent year to date versus the same period of 2013. EnerCare is a buy under USD10.

Energy Infrastructure companies Pembina Pipeline Corp (TSX: PPL, NYSE: PBA) and Keyera Corp (TSX: KEY, OTC: KEYUF) were outstanding performers as well, with total returns of 24.8 percent and 24.7 percent, respectively.

Pembina’s energy infrastructure assets represent a pure play on the prolific Western Canadian Sedimentary Basin, with growth driven by resurgent volume expansion, including oil sands, heavy and conventional oil, liquids and natural gas production. Pembina Pipeline is now a buy under USD44.

Keyera’s midstream gathering and processing and liquids businesses are well positioned to capitalize on a secular growth trend supported by modern drilling and production techniques for oil and gas production. Keyera is now a buy under USD75.

AltaGas Ltd (TSX: ALA, OTC: ATGFF), another Energy Infrastructure play and one of this month’s Best Buys, posted a total return of 22.1 percent for the first six months of 2014. AltaGas is now a buy under USD50.

Brookfield Renewable Energy Partners LP (TSX: BEP-U, NYSE: BEP) was the final Conservative Holding to outpace the broader S&P/TSX Composite from Dec. 31, 2013, through June 30, 2014, with a total return of 15.4 percent.

The pure-play renewable power generator continues to add assets at an impressive clip, with most of its new capacity contracted under long-term power purchase agreements that support predictable cash flow and dividend growth. Brookfield Renewable is a buy under USD34.

Laggards

The biggest Portfolio disappointment from a total return perspective thus far in 2014 is longtime Conservative Holding Cineplex Inc (TSX: CGX, OTC: CPXGF), which generated a loss of 4.6 percent for the first six months of the year.

It’s important to note that Cineplex posted a 34.6 percent gain in 2013, which was second to the 36.3 percent return posted by Davis + Henderson Income Corp, which is now known as DH Corp (TSX: DH, OTC: DHIFF), among Conservative Holdings.

Cineplex, which we recommended as a Best Buy in the June 2014 issue, is now down more than 10 percent from its Dec. 24, 2013, all-time high of CAD44.31.

DH Corp, incidentally, has produced total return of 6 percent for the relevant period. The integration of Harlan Financial Services, a transformative acquisition that makes DH  a truly global operations, is proceeding at a faster pace than management anticipated, with debt reduction and earnings accretion surpassing forecasts. DH is now a buy under USD28.

Cineplex, a member of the Portfolio since June 2010, has boosted its dividend every year since our initial recommendation. Management continues to diversify and augment its revenue streams via innovative uses of its key assets and early adaptation of new technologies, ensuring its continuing dominance through facilities upgrades and acquisitions.

And it’s well placed to build wealth for the long term, as Hollywood continues to churn out tent-pole franchises that keep the public in line at the box office for sequel after sequel. Cineplex is a buy under USD38.

Just two other recommendations are in the red for the year, Aggressive Holding Wajax Corp (TSX: WJX, OTC: WJXFF) at -0.3 percent and Conservative Holding TransForce Inc (TSX: TFI, OTC: TFIFF) at -1.9 percent.

We made Wajax a buy again in the April 2014 issue after several months of carrying a “hold” rating on the heavy equipment supplier. Management reported a 2.6 percent first-quarter revenue decline, while net earnings slid 27.6 percent, as the company struggled with spending slowdowns in the mining and oil and gas sectors.

But stimulus measures in China and, more directly, reviving North American economic growth suggests that improvement may not be far off. And the current dividend appears to be well supported.

Wajax has rebounded well off a May 9, 2014, 12-month closing low of CAD32.96 on the TSX, reaching CAD35.13 as of July 10. Wajax is a buy for aggressive investors under USD35.

TransForce, meanwhile, should begin to see an improvement in financial and operating results as demand begins to overtake supply in the Canadian trucking sector. This should give it more pricing power.

As the largest carrier in Canada, TransForce is well positioned to benefit from strengthening volume, capacity and price trends. And it should also see some earnigns upside from the integration of recent acquisitions.

TransForce is a buy under USD23.

Aggressive Holding Ag Growth International Inc (TSX: AFN, OTC: AGZFF) was up just 8.6 percent from Dec. 31, 2013, through June 30, 2014, but the stock has generated a total return in US dollar terms of 76.5 percent off its mid-November 2012 North American drought-induced low.

Crop levels in the US have returned to more normal levels, and the impact of the political crisis in Ukraine has thus far been very limited, despite a short-term hiccup for the stock in the late spring of 2014.

The grain-handling equipment maker and marketer remains well positioned to benefit from global food-production trends. Ag Growth is a buy under USD40.

Fellow Aggressive Holding Noranda Income Fund (TSX: NIF-U, OTC: NNDIF) is a similar “underperformer” with a half-year total return of 8.8 percent. The big question hanging over the fund whose major asset is an interest in a zinc-processing facility is what becomes of said facility once its contract with major customer Glencore Canada expires in 2017.

The current distribution rate is safe. But anxiety about what happens two years hence is likely putting a lid on the share price.

Noranda is a buy under USD6 for aggressive investors, with an 8.8 percent yield providing ample compensation while we wait for resolution of the Glencore issue.

Conservative Holding Bird Construction Inc (TSX: BDT, OTC: BIRDF) generated a first-half total return of 5.7 percent, as it continues to cycle through the impact of a single underperforming contract that’s marred the last three quarterly earnings reports.

Bird is poised to bounce back from a tough earnings year that’s still partly reflected in its valuation. The company’s record backlog of CAD1.4 billion and the healthy proportion of high-margin oil sands work that it’s started executing should drive the turnaround. Bird Construction is a buy under USD14.50.

Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF) bested only Cineplex and TransForce among Conservative Holdings during the first six months of 2014, with a total return in US dollar terms of 4.6 percent.

But from a 2014 closing low of CAD9.64 on Feb. 26 the stock price has rallied by 12.8 percent.

The trailing-12-month payout ratio as of March 31, 2014, was 111.9 percent, which, as we noted last month, is a red flag. We are anxiously awaiting signs of improvement in its second-quarter earnings report, which management will deliver on Aug. 7.

Innergex’ early 2014 slide was likely a function of weak hydrology conditions during the first quarter, though water flows in British Columbia did begin to improve in May. Innergex posted very similar results in the first quarter of 2013, when consolidated production was also at 84 percent of long-term average, mainly because of poor weather conditions in BC as well.

First-quarter power generated was up 8 percent to 417 gigawatt-hours (GWh), 84 percent of the long-term average.

Hydro facilities only produced 187 GWh for 67 percent of its long-term average, primarily due to below-average hydrology in British Columbia. The wind segment generated 223 GWh for 105 percent of its long-term average.

Innergex posted very similar results in the first quarter of 2013, when consolidated production was also at 84 percent of long-term average, mainly because of poor weather conditions in BC as well.

It’s tough to pin this on management, as weather can have both positive and negative effects on results.

Recent acquisitions and project commissions give Innergex 95 MW more of net installed capacity, a 20 percent year-over-year increase, all demonstrating a high availability rate. So the renewable power producer does have more capacity to produce if the weather actually shows up.

Innergex remains a buy under USD10.

The five Canadian real estate investment trusts (REIT) in the Conservative Holdings produced an average half-year total return of 8.7 percent, paced by RioCan REIT (TSX: REI-U, OTC: RIOCF) at 12.8 percent and Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF) at 10.1 percent. Artis REIT (TSX: AX-U, OTC: ARESF) was also solid at 9.3 percent.

Northern Property REIT (TSX: NPR-U, OTC: NPRUF) at 6 percent and Dream Office REIT (TSX: D-U, OTC: DRETF) at 5.2 percent brought up the rear.

We have more on our REIT Holdings in this month’s In Focus feature.

Early Reporter

Conservative Holding Shaw Communications Inc (TSX: SJR/B, NYSE: SJR), which posted a first-half total return of 7.7 percent, kicked off earnings season in decent style, reporting revenue for its fiscal 2014 third quarter of CAD1.34 billion, up 1 percent over the prior corresponding period. Year-to-date revenue was up 2 percent to CAD3.98 billion.

Total operating income before restructuring costs and amortization was up 3 percent to CAD601 million for the quarter and grew by 1 percent to CAD1.74 for the nine months ended May 30, 2014.

Free cash flow for the three- and nine-month periods of CAD240 million and CAD555 million, respectively, were up 74 percent and 2 percent versus the same periods of fiscal 2013. The recently concluded quarter included lower capital investment compared to the prior year.

Net income for the third quarter of fiscal 2014 was CAD228 million, CAD0.47 per share, versus CAD250 million, or CAD0.52 per share a year ago.

Nine-month net was CAD695 million, or CAD1.45 per share, compared to CAD667 million, or CAD1.40 per share, for the prior corresponding period.

The year-to-date improvement was driven by lower amortization and interest expense, partially offset by restructuring charges.

The current quarter declined as the net impact of the aforementioned items and lower income taxes was more than offset by the gain on sale of certain cable assets in the comparable quarter.

Revenue in the Cable division of CAD845 million and CAD2.53 billion for the three- and nine-month periods improved 2 percent and 3 percent, respectively, over the comparable periods.

Cable produced third-quarter operating income before restructuring costs and amortization for the quarter of CAD417 million, a 5 percent year-over-year increase. Nine-month income was up 3 percent to CAD1.22 billion.

Satellite revenue for the quarter was CAD220 million, up from CAD218 million. Nine-month segment revenue was 658 million, up from CAD641 million for the prior corresponding period.

Quarterly operating income was CAD70 million, down from CAD72 million a year ago. Nine-month income was CAD205 million, down from CAD219 million.

The Media unit posted quarterly revenue and operating income CAD301 million and CAD114 million, respectively, down from CAD307 million and CAD116 million. Nine-month revenue slipped to CAD865 million from CAD875 million, while operating income declined to CAD312 million from CAD319 million.

Shaw posted a second consecutive quarter of solid revenue-generating unit and financial trends, with cable subscriber statistics particularly positive.

Shaw continues to trim costs via work-force rationalization, with the elimination of 400 management and non-customer-facing positions likely to add about CAD50 million in annual savings at a one-time cost of CAD53 million.

Management boosted its fiscal 2014 free cash flow guidance from CAD625 million to CAD650 million to CAD650 million-plus.

And Shaw hinted at the future possibility of capital expenditures dipping below the 20 percent of sales level it’s been at for a while, which would provide further uplift to free cash flow.

Management explained that because it’s invested in building out one of Canada’s fastest
and robust network infrastructures over the past few years, and thereby kept Shaw ahead of the pack, CAPEX is set to potentially decrease in fiscal 2016 and fiscal 2017.

Shaw Communications remains a buy under USD24.

On Your Mark…

Here are estimated and confirmed dates for the next set of operating and financial numbers from Canadian Edge Portfolio Holdings. Except where noted, Holdings will be reporting second-quarter 2014 results.

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–July 31, 2014 (confirmed)
• Artis REIT (TSX: AX-U, OTC: ARESF)–Aug. 7, 2014 (confirmed)
• Bank of Nova Scotia (TSX: BNS, NYSE: BNS)–Aug. 26, 2014 (FY 2014 Q3, confirmed)
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–Aug. 12, 2014 (estimate)
• Brookfield Real Estate Services Inc (TSX: BRE, OTC: BREUF)–Aug. 12, 2014 (estimate)
• Brookfield Renewable Energy Partners LP (TSX: BEP-U, OTC: BRPFF)–Aug. 7, 2014 (confirmed)
• Canadian Apartment Properties REIT (TSX: CAR, OTC: CDPYF)–Aug. 8, 2014 (confirmed)
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–Aug. 8, 2014 (estimate)
• DH Corp (TSX: DH, OTC: DHIFF)–July 29, 2014 (confirmed)
• Dream Office REIT (TSX: D-U, OTC: DRETF)–Aug. 7, 2014 (confirmed)
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–Aug. 13, 2014 (estimate)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–Aug. 7, 2014 (confirmed)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–Aug. 7, 2014 (estimate)
• Northern Property REIT (TSX: NPR, OTC: NPRUF)–Aug. 12, 2014 (confirmed)
• Pembina Pipeline Corp (TSX: PPL, NYSE: PBA)–Aug. 8, 2014 (confirmed)
• RioCan REIT (TSX: REI, OTC: RIOCF)–July 31, 2014 (confirmed)
• Shaw Communications Inc (TSX: SJR/B, NYSE: SJR)–Oct. 24, 2014 (FY 2014 Q4, estimate)
• Student Transportation Inc (TSX: STB, NSDQ: STB)–Sept. 16, 2014 (FY 2014 Q4, estimate)
• TransForce Inc (TSX: TFI, OTC: TFIFF)–July 24, 2014 (confirmed)

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN OTC: ACAZF)–July 28, 2014 (confirmed)
• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–Aug. 13, 2014 (confirmed)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–Aug. 1, 2014 (estimate)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–Aug. 8, 2014 (estimate)
• Crescent Point Energy Corp (TSX: CPG, NYSE: CPG)–Aug. 8, 2014 (estimate)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–Aug. 8, 2014 (estimate)
• Extendicare Inc (TSX: EXE, OTC: EXETF)–Aug. 6, 2014 (confirmed)
• Magna International Inc (TSX: MG, NYSE: MGA)–Aug. 8, 2014 (estimate)
• Newalta Corp (TSX: NAL, OTC: NWLTF)–Aug. 7, 2014 (estimate)
• Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–July 22, 2014 (confirmed)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–Aug. 7, 2014 (estimate)
• PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–Aug. 8, 2014 (estimate)
• Lightstream Resources Ltd (TSX: LTS, OTC: LSTMF)–Aug. 7, 2014 (estimate)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–Aug. 13, 2014 (estimate)
• ShawCor Ltd (TSX: SCL, OTC: SAWLF)–Aug. 8, 2014 (estimate)
• Vermilion Energy Inc (TSX: VET, NYSE: VET)–July 31, 2014 (confirmed)
• Wajax Corp (TSX: WJX, OTC: WJXFF)–Aug. 8, 2014 (estimate)