Precious Metals & Mining Trust (TSX: MMP-U, OTC: PMMTF) has finally acknowledged reality. The board of directors of Sentry Investments Inc, which manages the fund, announced on June 27, 2013, that Precious Metals & Mining’s monthly cash distribution “will be changed” from CAD0.07 per unit to CAD0.035 per unit.

This 50 percent cut is effective with the Aug. 15, 2013, payment to unitholders of record on July 31, 2013, and will remain at this level until further guidance is provided by Sentry.

The Sentry board made the move “given the current environment for gold mining equities,” which comprise the bulk of Precious Metals & Mining’s portfolio. A quick look at the top 10 holdings as of March 31, 2013, makes clear that the “current environment” is a difficult one.

Top holding Rio Alto Mining Ltd (TSX: RIO, NYSE: RIOM), which accounted for 13.24 percent of assets, posted a first-half total return of negative 61.69 percent. No. 2 holding Timmins Gold Corp (TSX: TMM, NYSE: TGD) had the second-best six-month performance, losing 22.41 percent.

SEMAFO Inc (TSX: SMF, OTC: SEMFF), the No. 3 holding, shed 53.99 percent from Dec. 31, 2012, through June 28, 2013. The best-performing holding was ninth-weighted Fortuna Silver Mines Inc (TSX: FVI, NYSE: FSM), which was off by just 15.66 percent.

The top 10 holdings, which accounted for 72.81 percent of overall assets, generated an average loss in total return terms of 44.32 percent.

This is ample evidence in support of Sentry’s observation that “gold mining equities are trading at their lowest valuations relative to the gold price in 25 years.” We take issue, however, with Sentry’s conclusion that said equities “present an excellent investment opportunity.”

The board cast its decision to reduce the payout by 50 percent in terms of freeing capital for managers to invest and therefore “improve unitholders’ potential total return.”

We would point out that Precious Metals & Mining has been paying out a high distribution despite the fact that the 93.67 percent of the closed-end fund’s holdings that are gold and silver miners have generated zero investment income over the past year.

We would also point out that gold has declined by 37 percent from its 2011 high, calling into question the long-made argument that it represents a low-risk store of value.

As analysts at global investment banking firm Jefferies recently noted, “An asset that declines by 37 percent in value doesn’t qualify as a ‘safe haven’ or ‘store of value.’ And it never should have. Gold is a commodity whose price can rise or fall.”

Moreover, the risk that selling will lead to more selling and drive the price of gold below the cost of production is arguably not reflected in prices of gold mining equities.

The price of bullion increased more than five-fold from 2003 to 2011. But major gold mining companies generated little to no free cash flow. And they’re likely to generate negative free cash over the next several years.

As Jefferies notes, the gold price will have to decline even further before existing mines cut production. But modest production cuts will do little to support the gold price in the medium term, as gold has a far larger and more liquid above-ground stockpile than most other mined commodities. The cost of production is therefore not as relevant to the commodity price as it is for other commodities such as copper.

Sell Precious Metals & Mining Trust if you haven’t already done so.

The biggest gold producer in the world, Barrick Gold Corp (TSX: ABX, NYSE: ABX) usually declares its dividend about a week ahead of announcing quarterly results. Management will report second-quarter numbers on Aug. 1, 2013.

On or about Jul. 24, Barrick could announce a reduced rate for the dividend payable in mid-September.

In a June 29, 2013, press release Barrick announced that it would book a second-quarter impairment charge of USD4.5 billion to USD5.5 billion related to a delay at the Pascua-Lama project straddling Chile and Argentina in the Andes as well as due to continuing price declines for gold and silver.

Due to what it described as “construction re-sequencing” Barrick now anticipates bringing the mine into production in mid-2016 as opposed to a prior target of the second half of 2014. The schedule change “will result in a significant deferral of planned capital spending in 2013 and 2014.”

It will also give Barrick time, in management’s estimation, to find more cost savings for a project that was originally budgeted at USD2 billion but has ballooned to around USD8 billion. But given hostility to the project on both sides of the border production could be delayed further still beyond the new start-up date.

And costs, even if only due to inflation, could spiral higher because of the delay. Management will reveal its final impairment charge with second-quarter results on Aug. 1. Barrick is also reviewing its other assets, including goodwill, for possible impairment charges in the second quarter, which “are likely to be significant.”

Another factor to keep in mind with regard to gold miners is that all-in sustaining costs reported by many of the majors are running only a little below the current gold price. Some will be operating at a loss at current gold prices.

Goldcorp Inc (TSX: G, NYSE: GG), for example, among the lowest-cost gold producers, reports its all-in sustaining costs at USD1,000 to USD1,100 an ounce. This suggests many other miners will be under water with a gold price between USD1,200 and USD1,300.

Gold Fields Ltd (South Africa: GFI, NYSE: GFI) CEO Nick Holland has stated publicly that gold miners need a gold price of USD1,500 an ounce to stay in business.

Barrick’s efforts to control costs will likely extend beyond Pascua-Lama and could very likely include a hard look at the current dividend rate.

Australia-based Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY), for example, the world’s No. 6 gold producer, announced in May 2013 asset impairments and writedowns that will approach USD5 billion to USD6 billion and that no “final” dividend will be paid in respect of fiscal 2013 full-year results.

Moody’s noted that the USD5.5 billion impairment charge related to Pascua-Lama has no immediate impact on Barrick’s Baa2 ratings, though the outlook remains “negative.”

Barrick Gold, which has declined from a 52-week high of CAD42.10 on Sept. 21, 2012, to CAD15.51 as of July 3 on the Toronto Stock Exchange (TSX), is a sell.

Wajax Corp (TSX: WJX, OTC: WJXFF), which announced a 25.9 percent reduction in its monthly dividend rate on May 10, is now off the Dividend Watch List.

Weak fourth-quarter earnings and management’s well-communicated acceptance that a cut was necessary in the face of reduced drilling in the Canadian energy patch got it on the List.

Earnings for 2013 are likely to be lower than in 2012, another factor, in addition to a weaker backlog and cloudy forecasts for oil and gas and mining activity over the balance of the year, behind management’s decision to cut the monthly dividend rate to CAD0.20 per share from CAD0.27.

The magnitude of the cut–and the cash that it frees–should enable the company to make necessary investments to keep the business stable at the same time managing costs in a tighter operating environment without further reductions. Wajax remains a hold.

Please note that, because of the volatile nature of commodity pricing, all Oil and Gas companies in the How They Rate coverage universe should be considered permanent members of the Dividend Watch List.

Here’s the rest of the Dividend Watch List. Not all members are sells, though the most conservative investors should avoid the lot of them.

Barrick Gold Corp’s (TSX: ABX, NYSE: ABX) place on the Dividend Watch List is explained above. Sell.

Bonavista Energy Corp (TSX: BNP, OTC: BNPUF) reported flat first-quarter revenue, though funds from operations ticked up by 5 percent on a 3 percent increase in output. A 37 percent increase in realized natural gas prices offset a 4 percent decline for natural gas liquids prices and a 9 percent decline in realized crude prices.

The key remains management’s ability to lock in pricing for future production and establish a solid and predictable cash stream. Hold.

Cathedral Energy Services Ltd’s (TSX: CET, OTC: CETEF) first-quarter funds from operations per share slid to CAD0.20 from CAD0.46 a year ago, as revenue declined 20.3 percent due to the slowdown in Canadian. This was offset somewhat by US production testing.

It’s still a volatile environment for Energy Services firms, and the company is coming off a fourth quarter where funds from operations declined by 61.7 percent. Hold.

Chorus Aviation Inc (TSX: CHR/B, OTC: CHRVF) cut its dividend in half on May 10, a direct consequence of its ongoing dispute with Air Canada (TSX: AC/A, OTC: AIDIF). But it remains on the List because the longer the dispute goes on, the bigger its potential liability to Air Canada should it not prevail on the merits in the arbitration process.

Chorus reduced the quarterly rate from CAD0.15 to CAD0.075 effective with the payment due in July in order to conserve cash.

Chorus has expressed confidence in its position but warned that an adverse outcome would result in it owing a significant retroactive payment to Air Canada, dating back to the start of 2010. An outcome has been delayed until late 2013. Sell.

Colabor Group Inc (TSX: GCL, OTC: COLFF) announced on June 17, 2013, that declarations of dividends going forward will coincide with management’s announcement of quarterly financial results.

That means rather than in mid-June, as was its previous practice, Colabor will make its next dividend announcement on or about July 18, 2013, when management reveals second-quarter results.

The yield on the stock has soared to 22.1 percent. And management was less than stirring in its endorsement of the current CAD0.18 per share quarterly dividend rate during its conference call to discuss “disappointing” first-quarter results that prompted us to sell the stock from the CE Portfolio.

A significant reduction in the current rate of CAD0.18 per share per quarter is likely. Sell.

Data Group Inc’s (TSX: DGI, OTC: DGPIF) first-quarter revenue of CAD82.9 million missed guidance, but management pointed to new customer agreements and cost reductions as signs of progress on its rebound strategy.

The share price surged from an all-time closing low of CAD1.65 on Feb. 27 to CAD2.48 on March 8 on significant volume.

That momentum has withered, however, as questions remain about any business attempting the transition from print to digital. The stock is trending toward its all-time closing low again, changing hands at CAD1.84 as of this writing.

The new quarterly dividend rate of CAD0.075 per share will allow more debt reduction and business investment than the old monthly rate of CAD0.0542 per share. But the issue here is more fundamental. Hold.

Eagle Energy Trust (TSX: EGL-U, OTC: ENYTF), a recent addition to the How They Rate coverage universe, is already seeing its dividend under pressure as a small producer in a tight environment.

The non-SIFT trust makes monthly declarations; the last one on June 14 was CAD0.0875, consistent with May’s. The next will occur on July 15.

First-quarter funds flow from operations grew by 30 percent year over year and 20 percent sequentially to CAD11.9 million, and costs declined by 37 percent. Encouragingly, management boosted full-year capital expenditure and funds flow guidance. Hold.

FP Newspapers Inc (TSX: FP, OTC: FPNUF) declared another CAD0.05 per share monthly dividend in mid-June, but declining circulation and classified advertising revenue and flat digital revenue on a sequential basis indicate momentum for a necessary print-to-digital transition remains elusive.

First-quarter numbers give the appearance of improvement, as net income rose slightly to CAD1 million from CAD800,000 a year ago. But a shrinking business with rising costs is not long to support the current dividend rate. Sell.

Freehold Royalties Ltd (TSX: FRU, OTC: FRHLF) saw a 4 percent increase in average production from its lands during the first quarter. But this was offset by a 10 percent decline in realized prices. Funds from operations slid 7 percent to CAD23.8 million.

The dividend was covered by free cash flow. And debt reduction continues. There’s little margin for error here, though improving differentials will continue to help support the dividend. Hold.

GMP Capital Inc (TSX: GMP, GMPXF) reported a 26.1 percent decline in first-quarter revenue to CAD48.8 million. The financial services firm posted a net loss of CAD0.02 per share due to, in management’s words, “the near-term impact of ongoing malaise in global markets.”

The payout ratio for the period soared to 192 percent. Hold.

Labrador Iron Ore Royalty Corp (TSX: LIF, OTC: LIFZF) declared CAD0.25 per share and CAD0.125 per share regular and special dividends on June 12, 2013, maintaining the payout practice established during the preceding six quarters.

Labrador has hired its own advisers to study strategic alternatives following Rio Tinto Plc’s (London: RIO, NYSE: RIO) announcement of a plan to study its Iron Ore Company stake. And it’s been reported that global resources giant Glencore Xstrata Plc (London: GLEN, OTC: GLCNF, ADR: GLNCY) is exploring the possibility of buying the asset.

Management has confirmed that bidding for IOC has reached the second stage, but it hasn’t held talks with parties involved. It’s possible that an eventual buyer will consolidate the IOC holding and Labrador, for tax reasons among other considerations.

The fate of the dividend is tied to what happens with the facility that generates Labrador’s cash flow. But if it sells itself all questions are answered. Hold.

Manitoba Telecom Services Inc (TSX: MBT, OTC: MOBAF) had its BBB credit rating confirmed by DBRS, which also sees a “stable” trend. But Verizon Communications Inc’s (NYSE: VZ) rumored interest in smaller wireless players Wind Mobile and/or Mobilicity is a serious threat.

MTS reported a 31.9 percent increase in first-quarter free cash flow to CAD47.6 million, though revenue was off 6.5 percent to CAD406.7 million due to legacy declines and planned reductions.

Management has also struck a deal to sell its Allstream for CAD520 million to Egyptian telecom magnate Naguib Sawiris, founder and non-executive chairman of Accelero Capital Holdings.

The cash realized from the sale should help MTS grapple with a growing pension-funding deficit that it continues to perpetuate–all within Canadian law–so it can post inflated free cash flow numbers. Sell.

New Flyer Industries Inc (TSX: NFI, OTC: NFYED) announced the acquisition of North American Bus Industries for CADD80 million, virtually all of the consideration in the form of satisfaction of affiliate debt. The manufacturer has also won contracts to build as many as 265 heavy-duty, compressed-natural-gas powered buses for Atlanta and up to 50 for BC Transit in British Columbia.

First-quarter 2013 orders reached 2,004 equivalent units, the highest level since the fourth quarter of 2008 and the fourth consecutive sequential increase. And units delivered were up 10.9 percent, as free cash flow covered the dividend covered the dividend for a second consecutive quarter.

Management also stated its belief that “sufficient free cash flow will be generated to maintain the current annual dividend rate of CAD0.585.”

The key driver of revenue–government spending–continues to be constrained all over North America. But recent orders are encouraging. Hold.

Northland Power Inc’s (TSX: NPI, OTC: NPIFF) first-quarter adjusted EBITDA declined slightly due to a rate decrease at its Iroquois Falls project and lower production at two wind farms. These negatives were offset by solid performance at the Jardin wind farm and good results at Kingston and Thorold.

Management announced acquisitions of a natural gas-fired and a biomass-fired power plant in April, demonstrating it has the balance-sheet strength to continue to grow. The plants should add to cash flow in the second half of 2013. Management still concedes, however, that the dividend won’t be covered by free cash flow until 2014. Hold.

Parallel Energy Trust’s (TSX: PLT-U, OTC: PEYTF) first-quarter average production of 6,803 barrels of oil equivalent per day was below management’s forecast of 7,200 due to significant weather disruptions in January and February and underwhelming results from a new drilling technique. The payout ratio, however, declined to 92 percent from 139 percent in the fourth quarter.

This small producer already has one dividend cut under its belt. Until operations show a consistent track and the payout ratio comes down even more it remains on the List. Hold.

Penn West Petroleum Ltd (TSX: PWT, NYSE: PWE) announced a 48.1 percent cut in its quarterly dividend rate, from CAD0.27 to CAD0.14 effective with the third-quarter payment due in October.

In a June 4, 2013, statement that covered much more than the new dividend policy, Penn West also announced the retirement of CEO Murray Nunns, a commitment to “focus on operating the business in a more efficient manner” and the formation of a special committee of the board of directors to explore strategic alternatives.

“Strategic alternatives” could include splitting the company in two, one holding assets with greater growth potential, another one holding assets capable of supporting a dividend. The company could also sell assets and/or enter joint ventures to gain access to capital sufficient to support growth initiatives.

And it could be a takeover target, as its assets are arguably extremely undervalued at these levels. As of Jul. 3, 2013, Penn West was trading at just 0.63 times book value, CAD11.33 on the Toronto Stock Exchange compared to an estimated value of approximately CAD18 per share.

The company is saddled with more than CAD3 billion of debt, though there are no significant maturities until 2016.

Uncertainty over the strategic direction with new leadership in place and how the current dividend rate fits in this equation underpin Penn West’s continuing presence on the List. Hold.

Precious Metals & Mining Trust’s(TSX: MMP-U, OTC: PMMTF) place on the Watch List is explained above. Sell.

Ten Peaks Coffee Company Inc (TSX: TPK, OTC: SWSSF) reported a solid increase in volumes processed as well as a 72 percent increase in gross profit in the first quarter. Importantly, cash flow from operations surged by 141 percent, allowing management to pay down debt, strengthen the balance sheet and build in some protection for the current dividend rate.

Ten Peaks is adding market share on solid performance in the US, where volumes have grown 35 percent over the past three years. But coffee is a tough, volatile business, and it’s a hard model on which to base a dividend-paying business. Management will report first-quarter 2013 results on or about May 10. Sell.

Zargon Oil & Gas Ltd (TSX: ZAR, OTC: ZARFF) reported a 15 percent sequential decline by a 3 percent increase in first-quarter funds from operations to CAD13.9 million. The small oil and gas producer’s realized oil price declined by 13 percent, and it remains highly susceptible to fluctuating commodity prices.

First-quarter costs also ticked higher, though improving scale will help over the long term. Management maintained the CAD0.06 monthly dividend rate for payments in August, September and October. Hold.