CE Portfolio Aggressive Holding Just Energy Group Inc (TSX: JE, NYSE: JE) announced along with fiscal 2013 third-quarter results that it would reduce its monthly dividend rate to CAD0.07 per share for fiscal 2014.

The new rate–32.3 percent lower than the CAD0.10333 per share Just Energy paid from August 2008 through March 2013–became effective with the April 2013 payment.

Just Energy reported encouraging fiscal 2013 fourth-quarter and full-year financial and operating results this morning that tend to support management’s contention that the new rate would allow the company to pursue growth initiatives, pay down debt and strengthen the balance sheet.

The market is reacting positively to today’s announcement, as Just Energy’s share price is up 13.4 percent to CAD7.10 as of this writing from a closing price on Wednesday, May 15, of CAD6.26 on the Toronto Stock Exchange. This is the stock’s biggest single-day up-move since October 2008, and it’s happening on two times the average three-month moving average of daily.

On the New York Stock Exchange the shares have traded up from USD6.15 as of the close on May 15 to USD6.88.

Investors have been encouraged by management’s outlook for fiscal 2014, during which Just Energy is expected to cover its new dividend rate with funds from operations.

Management noted in its statement announcing results that recent expansion efforts will begin to bear fruit during the current fiscal year, as “the vast majority” of the company’s markets “have reached a critical mass” so that the cost of adding new customers is now offset by cash flow from customers added during the previous three years.

And during fiscal 2014 the 10 new territories entered in fiscal 2013 will grow enough to move from cash-flow negative to “significantly” cash-flow positive.

The natural gas and electricity retailer added a company-record 1.35 million customers during fiscal 2013, 24 percent more additions than in fiscal 2012.

Management reported strong National Home Services growth, with an installed base of 235,000 up 42 percent year over year. The overall customer base of 4.46 million is 10 percent higher than at the end of fiscal 2012.

Gross margin of CAD525.9 million was up 5 percent. Gross margin per share of CAD3.65 was 3.3 percent higher than a year ago. Embedded gross margin–the metric management cites as the best indicator of the company’s value–was CAD2.27 billion, or CAD15.77 per share, up 15 percent year over year.

Funds from continuing operations–cash generated from Just Energy’s businesses excluding the Ethanol division, which is classified as discontinued operations as of the end of fiscal 2013–were CAD103.8 million, or CAD0.72 per share, a 38 percent decline from CAD166.3 million, or CAD1.18 per share, for fiscal 2012.

Higher gross margin was offset by higher operating and finance costs. But cost pressures should ease due to Just Energy’s recent expansion efforts maturing.

The Fulcrum acquisition in October 2011 and the build-out of operations in the UK and expansion into additional territories led to a 22 percent increase in costs in fiscal 2013 versus fiscal 2012.

Management noted that “the base is now in place in all key markets,” and this should allow Just Energy to meet its customer-growth goals with minimal cost growth in fiscal 2014. And “this trend should extend into the foreseeable future,” as sales and marketing expenses have been declining on a per new customer basis as a result of increased commercial sales as well as the use of new channels such as network marketing, telemarketing and internet sales.

Just Energy also reported a decline in bad debt expenses from 2.4 percent of sales to 2.1 percent in fiscal 2013, at the low end of the targeted range of 2 percent to 3 percent.

And attrition rates have continued a steady decline, as commodity market prices have come in line with the current contract offerings. Management expects attrition to remain stable or improve slightly in fiscal 2014. Just Energy’s calculation of embedded margin doesn’t assume any further improvement in attrition rates. Renewal rates similarly improved significantly in fiscal 2013, rising to 69 percent from 64 percent.

During the fourth quarter management also started the process of selling its non-core Terra Grain Fuels ethanol plant in Saskatchewan. The plant, with the capacity to produce 150 million liters of wheat-based ethanol and high-protein distillers’ dried grain per year, was acquired in 2009 as part of the Universal Energy Group Ltd acquisition.

Management intended to keep the asset so long as it operated on a cash-flow-neutral basis, at a minimum, but noted that Terra Grain “has been operating in an unpredictable product environment.” This made it difficult “to derive real growth and profitability from the segment.” Just Energy expects to complete a sale within the next 12 months.

Management reported a payout ratio for fiscal 2013 of 184 percent of funds from continuing operations. On a pro forma basis–or taking account of the new, CAD0.07 per month rate–the payout ratio is 125 percent.

Just Energy guided for base EBITDA of CAD220 million for fiscal 2014, which would represent a 34 percent increase over fiscal 2013 base EBITDA. Accounting for in interest costs and expected taxes, this would leave the company with a payout ratio on funds from operations of under 100 percent based on the new annualized rate of CAD0.84 per share.

For the long term Just Energy is targeting a payout ratio of 60 percent to 65 percent of funds from operations, and management expects, based on embedded margins and prevailing operating trends, to be within this range by fiscal 2016.

Based on anticipated future growth and the new dividend level management, expects to reduce its debt-to-EBITDA ratio to its long-term target range of 3.5 to 4.0 by the end of fiscal 2016.