Income investors are looking for two things; big dividend payments and safety. With these securities, investors get both. (Full Story Below)

So, for us income investors what's the "hottest", safest ticket in a recovering economy? Yes, I'll say it again: strong businesses paying high yields up to 21% plus are obvious targets for investors re-entering the market -- and the obvious target for me is safe, Canadian trusts.

While many global businesses are cutting distributions, the best Canadian trusts are increasing theirs. My strategy has been to stick to the highest-quality Canadian trusts and dividend-paying corporations, as long as their underlying businesses remain healthy.
And that strategy's paid off. We're getting some of the juiciest dividends on the planet, many of which are likely to be increased throughout 2010.

But this isn't yet a rising tide to raise all boats. We still must painstakingly separate the Canadian trusts and dividend-paying corporations with strong underlying businesses from the pack. And any picks that falter along the way will be jettisoned, regardless of how their shares have performed.

So, let's remember three things.

First, our Canadian trust recommendations have already come through three years of stress tests, and those still standing are a hearty breed indeed, paying the best real yields on the planet.

Second, value does ultimately command a fair price in the marketplace. The late March-September action may or may not be the beginning of a more explosive run. But we will see one, and it will propel trusts that hold it together as businesses much higher.
And, as I said above, we're still getting some of the juiciest dividends on the planet -- up to 16.52%, even in the conservative portfolio.

Focus on: Hollywood Investing and Food, Glorious Food

"Hollywood investing" -- rich reward minus the risk. Hollywood unleashed four blockbusters this summer much to the delight of our investors.

But it's not too late for you to cash in.

Hollywood's giving us investors a profit encore this holiday season when they release their Oscar contenders, also expected to rake in millions. One release in particular is the "most anticipated film since Titanic" -- James Cameron's 3-D sci-fi "spectacular", Avatar.

This is great news for one of my personal favorite trusts ...a cinema trust so expertly managed that it's trounced nearly all its competition. They operate eight top-tier cinema brands with a workforce of 9000.

They're totally ingenious in finding new ways to amass income for their coffers and yours. They're now flashing paid ads on all their screens--all 1,317 of them--and that's extra gravy on top of their regular, steady, income streams.

"Out of the box (office)" thinking has always characterized this trust. They've just snapped up a digital signage media company to extend their visibility and reach. So now they can broadcast their message from downtown office buildings, sports arenas -- you name it.

I should mention their interactive cinema website. They encourage movie-goers to blog, view trailers, and post comments. And they've been hugely successful in turning their web presence into a masterful loyalty tool that ensures repeat business.

Canadian movie buffs flock to the cinema and it's a recession-resistant enterprise. This trust pays you a generous 9.1% yield right now and you could see a 40-50% total return by 2010 year end. Bay Street analysts rate this trust a perfect 5.0. And its credit facilities won't begin to expire until well into 2012. If you ever wanted to be a movie mogul, this is the ticket.

From schools to street vendors to haute cuisine -- this trust "feeds" thousands every day.
The fact this trust has created a totally recession-proof business is exemplary enough. But the real feat is their drum-tight logistics. Hard to imagine how they do what they do in the first place. And yet they do it everyday, 365 days a year.

They are, foremost of all, bulk and brand food distributors to schools, universities, hospitals, government institutions, hotels, grocers and convenience stores, all under rock-solid contracts. Since schools must feed their students and hospitals are unlikely to starve their patients, you can appreciate the enduring and safe nature of this business.

And there's more. They provide everything from snacks, sweets and drinks to street vendors -- to the most exotic seafood to Canada's legendary restaurants in Quebec and Ontario. In all, they sell over 8,000 food products to over 3,000 businesses. Every day.

But that's not all -- their food handling and preparation business is another lucrative revenue stream -- all under iron-clad contracts.

And how does the trust perform for their investors? Their 2009 1st qtr earnings jumped 42.7% over 2008, with a 44.2% jump in cash flow. This trust continues to reinvent itself quarter after quarter with the same result -- more profit and more cash flow.

I'm strongly recommending this trust to you because you can still buy it at barely book value and it's yielding a solid 11.9%. And remember -- it's a dream of a business -- selling what everyone must have -- foodstuffs-- to institutional clients who must provide it to thousands every day.

Portfolio Action

This month, I've added retail liquor trust under Business Trusts as a buy up to $14.

The trust reported a 46.3 percent boost in distributable cash flow from its portfolio of stores in western Canada. That adds up to solid coverage (second quarter payout ratio 68 percent) of a yield of more than 12 percent, and in a business that's once again proving to be recession-resistant.

I'm not making any other changes to the Canadian Edge Portfolio this month. The current lineup represents the strongest Canadian trusts and corporations from a wide range of sectors. My best advice for all readers is to build an equally weighted mix of at least eight to 10 of them. Income seekers should lean more heavily on the Conservative holdings, whose distributions are not directly tied to energy prices. Those interested in a high distribution bet on energy will want to focus more strongly on the Aggressive holdings.

All of our holdings continue to rally over the past month, some quite strongly. For example, last month's Conservative addition, a trailblazing engineering and construction outfit, is up more than 75 percent since. They've even been tapped to build a revolutionary new sports complex for the 2010 Vancouver Olympics.

Every portfolio holding is still trading below its buy target, which is based on my valuation of its underlying business and long-run dividend-generating power.

A look ahead at safe, high-yield, Canadian trusts

Stress tested since mid-2006, unburdened by heavy debt and armed with long-life cash reserves, the best Canadian trusts are set not just to rally again throughout 2010, but to continue paying generous, predictable distributions up to 21.9% plus.

Here's a look at what income investors should expect from Canadian trusts from now through 2010, and where the best bets are.

-- Roger Conrad
Editor, Canadian Edge
 

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