IBI Group Inc (TSX: IBG, OTC: IBIBF) announced this week the immediate suspension of its dividend.

We recommended investors sell IBI in a May 17, 2013, Flash Alert.

In addition to ongoing operational challenges, management acknowledged, if only in a roundabout way, other pressures on its payout policy when it discussed first-quarter 2013 results.

As we noted in last week’s Flash Alert:

Management was alarmingly reticent to discuss IBI’s significant debt obligations coming due over the next 20 months during its first-quarter conference call, dismissing a question from an analyst with the following response, from Chairman and CEO Phil Beinhaker:

I don’t really want to discuss them now other than what we’ve said before, and that is that we are aware of them. And we are working on a variety of approaches to manage them in a timely manner and not to wait to the last day. And we have a number of alternatives and the board will consider them and deliberate on them and we look forward to implementing them over the ensuing quarters.

Overall debt as a percentage of total assets was a relatively high 45.1 percent as of the end of 2012, and management sought and received an adjustment to get IBI in line with its fixed-charge coverage ratio for the year-end period. Among the three metrics that are the focus of IBI’s debt covenants is the payout ratio. This raises the specter of another dividend reduction should operating conditions not improve.

And based on management’s rather tepid commentary on the operating environments in its three main markets we’re not encouraged. Coupled with IBI’s underwhelming operating and financial performance for the first quarter, it’s time to exit the position.

On Wednesday, in lieu of what would have been the declaration of the company’s next quarterly dividend, management said in a statement that “after careful consideration” the payout on its common shares for the quarter beginning March 1, 2013, and going forward would be suspended, effective immediately.

IBI cited its “commitment to manage cash to strengthen its balance sheet and manage its operations through a difficult period.” Management noted that it will “revisit” the company’s dividend policy in consideration of profitability and cash flow in the quarters ahead, as IBI “moves into solid and sustainable operations and an improved balance sheet.”

The market has responded positively to IBI’s effort to shepherd cash flow, pushing the share price higher by 4.4 percent in Friday trading. Use this opportunity to sell IBI Group and establish a loss to offset any capital gains you may realize for 2013.