It’s a difficult case to make that these are the best of times up north. But there’s no denying the Canadian economy has proven to be among the world’s most resilient in the aftermath of the Great Recession. Nor is it rational to chase a one-month drop-off in an indicator that’s otherwise enjoying a solid up-trend down the worst-of-times rabbit hole. China is the undisputed leader of this still-toddling recovery; we’ll wait for further confirmation before we ring the double-dip alarm.

Statistics Canada reported Monday that fourth-quarter gross domestic product (GDP) expanded at an annualized pace of 5 percent, the best showing since late 2000 and considerably stronger than the Bank of Canada (BoC) expected. The official data agency found strength across all the measurable that comprise GDP; this is not the result of potentially transitory impacts that come with such activity as inventory-building, nor is the expansion based on monetary factors.

Consumer spending increased 0.9 percent, led by durable goods such as furniture and cars. Housing investment rose 6.5 percent. Exports rose 3.7 percent, led by a 13 percent jump in automotive products, while imports rose 2.2 percent. Fixed-capital investment rose 1.6 percent. There was some tarnish on this otherwise shiny report, as machinery and equipment investment dropped 9.2 percent, a bad sign for already weak productivity levels.

StatsCan revised its estimate of third-quarter growth to 0.9 percent from 0.4 percent. Updated numbers reveal Canada’s first recession since 1992 was deeper than previously thought–the economy contracted by 7 percent in the first quarter of 2009. The economy shrank 2.6 percent in 2009, the most since 1982 and the third annual contraction since 1961.

The BoC kept its benchmark interest rate at 0.25 percent Tuesday, but Monday’s StatsCan report is more weight on the balance in favor of Mark Carney and company taking the first opportunity after their “conditional pledge” expires to hike it, probably by 25 basis points, not yet assuredly in July–as he’s often said Carney’s primary consideration in the interest-rate calculus is inflation. In April 2009 Carney cut the benchmark rate to its lowest level since the BoC was founded in 1934 and pledged to keep it there through the first half of 2010 unless the inflation outlook shifted.

The loonie is pushing parity with the greenback again after drifting down to the low 90s in USD terms. The Canadian currency, similar to the per barrel price of oil, has found a new, higher range that it will occupy so long as it’s able to efficiently produce and bring to market its ample store of commodities.

Canada is not an explosive story. There are pockets of excitement–particularly if you’re into double-digit yields thrown off by trusts, including those that have converted–but its ability to endure the most severe global downturn in more than 70 years is rooted in an inherently conservative domestic financial system and the abundant resources that separate it from its developed-nation peers.

Every G-7 country except Canada had to apply some sort of emergency treatment to its financial system. Some had to use tourniquets, others stitches and glue, but only Canada was in the position of choosing to lower rates so its currency wouldn’t blow past parity with the US dollar and to keep its domestic banks on a level playing field with international competitors.

Canada avoided the worst of this global spasm also because it was in a solid fiscal position after a decade of federal budget surpluses. Canada’s was a pure Keynesian move: It spent into deficit only when it had to; it had the wherewithal to spend without harming its long-term fiscal health. We’ll wait for the proof, but it appears Canadian officials have a manageable hole and will fill it within five to 10 years. Prime Minister Stephen Harper will outline a plan to address the deficit when he discusses the fiscal 2010-11 Canadian federal budget in a throne speech this evening.

Canada is, of course, reliant on the US for a large share of its economic growth. US-Canada–apart from having proven to be a great international hockey rivalry in recent weeks–is the largest bilateral trade relationship in the world. This won’t change anytime soon. But the total US contribution is shrinking as a share of Canadian growth. One of its most important rising trade partners is China, in particular, but Asia generally represents the future for Canada.

China’s Purchasing Managers Index (CPMI), reported Monday on behalf of the government by the China Federation of Logistics and Purchasing (CFLP), fell to 52 in February from 55.8 in January. Figures for most of the subgroups that make up the index were lower as well.

OK, so here’s one thing about CPMI, and all the PMIs like it around the world: A print above 50 indicates “expansion.” Skeptics seem to be treating this hiccup like a green shoot in reverse. A look beyond China, however, reveals that Asia more broadly is in fine shape: Manufacturing surveys from other economies indicate the recovery is on track. HSBC’s PMI for South Korea rose to a two-year high of 58.2, up from 55.6 in January, on rising demand home and abroad.

Indian manufacturing expanded for a third straight month, helped by stronger new orders, output and employment. The HSBC PMI for India rose to 58.5 in February from January’s 57.6.

The Middle Kingdom, on a different trajectory than the Great White North, is emerging as a global economic power more rapidly than perhaps even its leaders would like; there’s enormous pressure to sustain growth at a level that will accommodate the massive migration of rural Chinese to urban areas. These people need jobs, and the government won’t risk upsetting what’s potentially the most lethal threat to its regime: a billion Chinese citizens.

Structural factors made it possible for efforts by Canadian fiscal and monetary officials work–there is no long-term concern about funding a deficit and politicians of all party affiliations largely cooperated to get stimulus legislation out the door, the BoC hasn’t loaded up its balance sheet with questionable assets and pumped currency into the system to the degree its developed-nation peers have.

Although China faces a different set of (enormous) challenges, officials there have proven that they will do what it takes to maintain 8 percent-plus growth. Canada is extremely well positioned to benefit from these efforts and the continuing evolution of the Asian economies in general.

Act Now

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The Roundup

Six Canadian Edge Portfolio holdings joined the ranks of the reporting last week, and these six brought honor to the cause, churning out solid results, again, and further demonstrating their resilience in the face of still-challenging operating environments.

Canada’s Big Five banks began reporting fiscal 2010 first-quarter numbers as well; we’ll have a recap in next week’s Roundup.

Here’s the story from the Portfolio.

Conservative Holdings

AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF) reported funds from operations (FFO) for the fourth quarter of CAD51 million (CAD0.64 per unit), down from CAD53.8 million (CAD0.75 per unit) in the same period in 2008.Full-year FFO was CAD202.3 million (CAD2.58 per unit), down from CAD216.8 million (CAD3.15 per unit) in 2008. The company declared distributions totaling CAD43 million in the fourth quarter (CAD0.54 per unit), good for a payout ratio of 84.3 percent; for the year the payout ratio was 83.7 percent.

AltaGas strategy is to gather low-risk, long-life assets that generate stable revenue based on long-term purchase agreements on the power side and long-term fee-for-service arrangements on the natural gas extraction/transmission infrastructure side. A geographically and operationally diverse outfit, it’s positioning itself well to continue as a high-dividend-paying corporation after Jan. 1, 2011. AltaGas has CAD2 billion of organic growth projects underway or in various stages of planning, including three expansions specifically undertaken to meet producers’ demand. Management will spend CAD40 million making these upgrades, which will add to earnings in the third quarter of this year.

Acquisitions funded with debt in the fourth quarter pushed interest expense higher, though AltaGas’ average interest rate declined to 4.9 percent from 6.3 percent a year ago. As of Dec. 31, 2009, the company’s debt-to-capitalization ratio was 49.2 percent, up from 37.8 percent at the end of 2008 but within management’s desired range of 45 to 50 percent. AltaGas had CAD816 million of borrowing capacity available heading into 2010, CAD260 million of which is available to fund acquisitions. AltaGas must roll over existing credit facilities in the fall.

David Cornhill, chairman and CEO, noted during a conference call to discuss results that AltaGas still plans to convert back to a corporation during the second half of the year. The company will hold its annual meeting June 3, during which unitholders will vote on a plan. Cornhill reiterated his forecast that “AltaGas, the Corporation” will pay a dividend of CAD1.10 to CAD1.40 on an annualized basis. AltaGas Income Trust is a buy up to USD20.

Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF) recorded a 16th consecutive period of year-over-year same-property growth in the fourth quarter, capping what was a solid year amid a tough economy all over. Average monthly rents were up in most areas, and occupancy stood at 98 percent as of Dec. 31, 2009.

Fourth-quarter FFO rose 5.1 percent, while for the year it was up 2.9 percent. The 2009 payout ratio was 88.5 percent, down from 89.8 in 2008.

Fourth-quarter net operating income (NOI) margin improved to 53.5 percent from 52.7 percent on the impact of lower real estate taxes, energy costs and repair and maintenance expenses as a percentage of total revenue. For the year the NOI margin was 54.1 percent, consistent with 2008.

Total debt-to-gross book value was 62.75 as of Dec. 31, 2009. The REIT’s weighted average interest rate fell to 5.07 percent as it continued to take advantage of the low-rate environment. The REIT has total acquisition capacity of about CAD652 million, giving it the freedom to pursue growth opportunities.

CAP REIT’s position in the traditionally stable multiunit residential rental category makes it an ideal cash-generator for investors of all risk tolerances. Buy Canadian Apartment Properties REIT and its strong balance sheet, stable payout ratio, ample debt coverage and favorable fundamentals up to USD15.

Colabor Group’s (TSX: GCL, OTC: COLFF) 2009 highlight was its conversion to a corporation via the CAD5 million acquisition of tax losses totaling CAD130 million embodied by ConjuChem Biotechnologies; these tax losses will allow Colabor to shelter income in future and pay out more cash to shareholders.

Operationally, sales for the year increased 3.2 percent, while earnings surged by 6.3 percent. The wholesale segment recorded organic growth of 2.7 percent for the fiscal year and 1.9 percent for the fourth quarter, while retail contributed 1 percent organic growth for the year and 3.7 percent for the quarter. Food service grew 3.4 percent in 2009, 1.1 percent during the final 12 weeks of the year. Distribution posted a 6.4 percent contraction, primarily because of operation in Ontario, the Canadian province commonly considered the hardest hit by the recession due to manufacturing’s importance to local economy. Colabor Group is a buy up to USD12.

TransForce (TSX: TFI, OTF: TFIFF) Chairman and CEO Alain Bédard described last year as “probably the worst that anyone in the industry can remember” during a conference call to discuss his company’s fourth-quarter and full-year 2009 results. For TransForce economic realities meant it had to focus inward; cost reductions and streamlined operations helped it survive a downturn that spared no part of its business. Bédard took the unusual step of thanking TransForce employees for their flexibility in the face of serious challenges.

Despite what was going on around it, TransForce continued to execute its strategy of growing through acquisitions of smaller truckers. In the fourth quarter management snapped up the retail unit of Andlauer Transportation Service, which generates more than CAD100 million in annual revenue.

TransForce reported a 10 percent revenue decline to CAD488 million for the fourth quarter. Truckoad, TransForce’s largest segment at 32 percent of revenue, declined to CAD164 million from CAD195 million. LTL (less-than-truckload) revenue, which accounts for 26 percent of the total, was CAD131 million, down from CAD155 million. Specialized services (20 percent of total revenue) was down to CAD111 million from CAD141 million. The package and courier segment (19 percent of total revenue) saw an increase from CAD74.5 million a year ago to CAD93.9 million on the ATS acquisition. Fourth-quarter EBITDA was off 18 percent.

Revenue for the year across all segments was down 18 percent, but cost-cutting kept TransForce EBITDA margin close to historical norms. Cash flow from operating activities declined to CAD191 million from CAD218 million in 2008.

Because TransForce managed costs during the recession and maintained a solid balance sheet, it was able to make moves that position it to grow revenue once the global economic recovery gets going in earnest. Buy TransForce up to USD9.

• Artis REIT (TSX: AX-U, OTC: ARESF)–March 16 (confirmed)
• Atlantic Power Corp (TSX: ATP, OTC: ATLIF)–March 29 (confirmed)
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF)–March 19
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF)–March 4
• Davis + Henderson Income Fund (TSX: DHF-U, OTC: DHIFF)–March 2 (confirmed)
• IBI Income Fund (TSX: IBG-U, OTC: IBIBF)–March 17
• Innergex Power Income Fund (TSX: IEF-U, OTC: INRGF)–March 16
• Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF)–March 2 (confirmed)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–March 17 (confirmed)
• Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF)–March 3

Aggressive Holdings

Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF) reported cash flow from operating activities for the fourth quarter of CAD22.1 million, up from CAD18.7 million a year ago, and distributable cash after maintenance capital expenditures of CAD12.7 million (CAD0.41 per unit), up from CAD11.5 million (CAD0.35 per unit) in 2008. Revenue for the quarter was CAD132.8 million.

Full-year cash flow CAD68.7 million, down from CAD99 million, while 2009 distributable cash was CAD44.9 million (CAD1.46 per unit), down from CAD83.5 million (CAD2.50 per unit). The full-year payout ratio was 82.1 percent.

Results for the sulfur division were hurt by lower prices for sulfur and sulfuric acid and lower volumes for most products, particularly lower sulfuric acid due to the work stoppage at Vale Inco, Chemtrade’s largest supplier. Pulp chemicals reported improved fourth-quarter revenue on stronger demand.  The international unit reported revenue of CAD50.7 million for the fourth quarter, compared with CAD134.2 million in 2008. International operations generated EBITDA for the quarter of CAD16.2 million compared with CAD10.5 million last year.

Looking ahead, CEO Mark Davis noted during a conference call to discuss results that economic conditions do appear to be improving. “Our customers are now operating at higher rates than at the beginning of 2009,” he said, “and this upward trend seems to be continuing.” Davis concluded his remarks by making a case for Chemtrade and its ability to pay a high dividend: “We continue to believe that the nature of our business model as demonstrated by the strength of our businesses, even in times of low demand and price volatility, together with our strong balance sheet and ample liquidity, are more than sufficient to sustain our current distribution rate.” Chemtrade Logistics Income Fund is a buy up to USD12.

Enerplus Resources Fund (TSX: ERF-U, NYSE: ERF) CEO Gordon Kerr, during a fourth-quarter and full-year 2009 earnings conference call, described the transition his company embarked on in 2009 as a move “from the traditional income trust business model to a hybrid growth and income model.” It’s an observation Kerr is well qualified to make, obviously, but his conclusion is supported by his and Enerplus’ experience: Enerplus spent half a billion dollars gathering early-stage resource assets during 2009, including acreage in one of the most promising shale gas plays in North America, to set itself up to generate long-term cash flow. With an unused bank credit facility of CAD1.4 billion Enerplus is more than capable of snapping up good assets at favorable prices.

Serious declines in the prices of crude oil and natural gas hurt cash flow in 2009. After hitting CAD1.3 billion in 2008 cash flow receded to CAD776 million in 2009. Management trimmed distributions by 56 percent during the year, one among many steps it took to position itself for post-2011 realities. Average daily production slightly exceeded management expectations. Enerplus is also shedding non-core assets as it tightens its focus and trims costs ahead of its conversion. The 2010 capital budget of CAD425 million represents a 35 percent increase over 2008 levels and is a sign of Enerplus’ confidence in the durability of the emerging economic recovery.

On the question of conversion specifics, Kerr noted, “We expect to have a special meeting of unitholders in December this year and convert to a corporation on or about January 1 of 2011.” He added, “We remain committed to having a meaningful component of income distribution in our business model. However, we must also have a growth component in our business model. We have and will continue to position ourselves to offer investors both. We expect to continue to distribute a significant portion of our cash flow to unitholders once we are a corporation.” Enerplus Resources Fund is a buy up to USD25.

• Ag Growth International (TSX: AG-U, OTC: AGGZF)–March 11 (confirmed)
• Daylight Resources Trust (TSX: DAY-U, OTC: DAYYF)–March 2 (confirmed)
• Newalta (TSX: NAL, OTC: NWLTF)–March 5
• Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF)–March 10
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)–March 10 (confirmed)
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)–March 11 (confirmed)
• Trinidad Drilling (TSX: TDG, OTC: TDGCF)–March 3 (confirmed)
• Vermilion Energy Trust (TSX: VET-U, OTC: VETMF)–March 26