High-income stocks can be a double-edged sword; they can be great, resilient growers or dangerously over-leveraged firms with their best days behind them. Here are a couple that fit the former category, writes Roger Conrad of Canadian Edge.

My Conservative Holdings’ common strength is the ability to weather economic ups and downs and keep paying generous dividends. And both of January’s High Yield of the Month selections have definitely proven themselves in this regard.

Just Energy Group (Toronto: JE) has increased its dividend six times since October 2006, when Finance Minister Jim Flaherty announced a new tax on income trusts to take effect in January 2011. It’s now made the conversion to a corporation, holding its payout steady even as it absorbed new taxes.

And the unregulated seller of electricity and natural gas was able to pull that off despite one of the more volatile markets in memory for energy. That included a vicious decline in natural gas and electricity prices, which severely reduced the incentive of consumers and businesses to switch from utility default service to the company’s services.

Broadband cable television company Shaw Communications Inc (SJR), meanwhile, has increased its dividend 17 times in the last decade. It announced the most recent boost this month, of 5%, when it released fiscal 2012 first-quarter earnings on January 12.

That’s a testament to the strength and reliability of its underlying cable television business, as well as management’s continuing ability to leverage that with expansion in broadband services and entertainment content. And with connectivity needs growing rapidly, so are opportunities for growth.

My goal for both stocks is robust total returns. The pair, however, offers somewhat different roads to get there. Just Energy’s primary appeal, for example, is a safe yield made stratospheric by investors’ overpricing of its risks. I’m adding Shaw to the Conservative Holdings primarily for its ability to generate consistent, strong dividend growth.

Shaw’s primary business is cable television service, which it provides to 3.4 million users. Its core asset, however, is its fiber network, supplemented by satellite direct-to-home connections and a nascent WiFi system. Management has elected to build the latter as a way to leverage its existing network and take advantage of the proliferation of wireless devices, without going to the expense of constructing its own wireless infrastructure.

The company generates high levels of free cash flow after capital expenditures, enabling it to pay hefty dividends as well as continue retiring high-cost debt that was the legacy of initial network construction. Last August, for example, Shaw was able to complete the retirement of all of its 13.5% senior notes due 2015.

And some C$550 million in expected free cash for fiscal 2012 should afford more such opportunities to slash interest costs, eliminate refinancing risk, and even finance future growth.

The company also holds substantial programming assets. Its 18 specialty networks include the popular HGTV Canada, Food Network Canada, History Television, and Showcase.

These provide both a way to leverage Shaw’s existing network and marketing opportunities with rival networks. The company also operates a 7,000-title video-on-demand system and offers access to view every National Hockey League game. [Obviously, the last is a big plus in Canada—Editor.]

Last month, the company launched five new high-definition TV channels, including SPACE, Business News Network, Bravo!, Discovery Channel, and Animal Planet. It also inked a long-term distribution agreement with Rogers Communications (RCI).

Both moves enhance long-term profitability at little cost or risk, a hallmark of Shaw strategies that have consistently boosted shareholder value year after year. It’s a great time to add Shaw Communications to your portfolio below $22.

Just Energy shares have recovered sharply from their low point of $8.82, reached October 4. Much of that has come since mid-December, when management temporarily suspended its dividend reinvestment plan (available only to Canadians) and announced a plan to buy back up to 10% of its shares, with a limit of 25% of average daily volume on any trading day.

Management went on to say that shares “have been trading in a price range which does not adequately reflect their value in relation to Just Energy’s business and its future business prospects” and that purchases should be immediately accretive to earnings per share. CEO Ken Hartwick called the move “simple common sense,” given the company’s view that “our growth will meet or exceed our corporate objectives” for the current fiscal year.

The statements made were right in line with management’s comments throughout calendar 2011 regarding the safety of its dividend. It was, however, the company’s most significant move to date to back up its words with deeds, and the result has been a rise of roughly 20% for Just Energy shares over the last several weeks.

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My view is we’re going to see a lot more in the coming months. For one thing, Just Energy’s yield of 10%-plus still clearly reflects investor fears of a dividend cut in calendar 2012, quite possibly a substantial one. That’s not happening so long as management is still delivering on its guidance.

We’ll learn a lot more on or about February 10, when the company is slated to announce numbers for its fiscal 2012 third quarter. The keys will be maintaining profit margins and whether or not the company can add more customers than it loses to attrition.

That’s going to be a bit more difficult than usual given the steep decline in natural gas prices during the fourth quarter. And not only do low prices reduce the incentive to switch providers, they can also cut into margins for both gas and electricity, which is pegged to natural gas prices in many states.

Just Energy, however, has proven more than up to the task in recent quarters. There’s absolutely nothing to suggest they won’t do it again, and the job should indeed get easier later in the year as the company retires shares.

Just Energy also has the advantage of a very strong liquidity position. That’s in large part thanks to operating a business that doesn’t require large capital outlays, other than for completing acquisitions.

But the company has no debt maturities in 2012, and a $350 million credit line with only $63 million drawn. This line doesn’t expire until December 31, 2013. It also has no significant debt maturities until 2017, by which time it should have ample opportunities for refinancing.

Those are facts that haven’t gone unnoticed by Bay Street, which has remained consistently upbeat on the company with five “buys,” two “holds,” and no “sells.” Neither is it ignored by insiders, who are recent net buyers despite equity-based compensation. And so long as the business performs, it won’t be ignore by investors much longer, either.

As I’ve written again and again, I don’t believe in averaging down in any stock, no matter how attractive. No stock or company is foolproof, and we have to be ready to exit if the facts point us that way.

The surest way to get tied down in a stock—both financially and emotionally—is to really load up on it. That’s the mistake I’m very afraid many made with Yellow Media (Toronto: YLO) last year, turning a blow-up stock into a real portfolio-wide disaster.

I’m bullish on Just Energy. But if you already own the stock in proportion to the rest of your portfolio, there’s no sense buying more. Instead, put your funds to work in my new recommendation, Shaw Group, which should do just as well with its combination of solid yield and dividend growth.

New or underweighted investors can buy Just Energy up to $16.

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