After a couple uneventful months on the dividend-cut front the harsh realities of fourth-quarter and full-year 2013 reporting season exposed vulnerabilities for two members of the CE How They Rate Electric Power group. It should be noted that both operate unregulated businesses subject to ups and downs of merchant power and energy prices.

Although we have included TransAlta Corp (TSX: TA, NYSE: TAC) on the Dividend Watch List for CE’s sister letter Utility Forecaster, the non-regulated power producer and marketer did not appear in this space. Call it an unintentional hedging of bets, charitably, or less charitably, a clumsy error and inconsistency.

The crux of the matter, however, is that the CAD3.4 billion Calgary-based company announced, to the apparent surprise of many Bay Street observers, a 37.9 percent dividend cut, as management seeks to shepherd cash to fund growth projects.

TransAlta shares slid more than 7 percent the day of the announcement, as analysts digested the move and issued a couple downgrades. TransAlta is now rated a “buy” by one Bay Street firm, a “hold” by five and a “sell” by seven more.

TransAlta’s new annualized dividend rate is CAD0.72, down from CAD1.16. The merchant power producer has been hit hard by low prices for low prices for coal-fired electricity generation in Alberta and Washington State, where it operates the Centralia plant.

The payout reduction is a major step in the direction of repairing the balance to better position the company for long-term growth, according to CEO Dawn Farrell. Ms. Farrell noted too that the market “didn’t have the confidence that our dividend was sustainable,” evidenced by TransAlta’s steady decline from CAD22.81 on the TSX as of Sept. 30, 2011, to CAD14.90 just before the cut announcement.

As of this writing TransAlta is trading at CAD12.84.

The company reported a fourth-quarter loss of CAD66 million, reversing net income of CAD39 million for the prior corresponding period.

Management also announced an agreement to sell its 50 percent stake in CE Generation, Blackrock development and Wailuku to MidAmerican Renewables, its partner in the holdings, for CAD193.5 million.

TransAlta will certainly have greater flexibility to pursue its plans. Next up for management is execution. TransAlta is a hold.

Crius Energy Trust (TSX: KWH-U, OTC: CRIUF), an independent energy retailer with more than 600,000 customers in the US, cut its monthly dividend rate by 30 percent from CAD0.0833 to CAD0.0583, management attributing the decision to soaring costs of energy during a particularly cold first quarter in the markets it serves as well as slowing customer growth.

Management expects to maintain the new level throughout 2014. The board will review the dividend policy at year’s end, which suggests another cut from the present annualized rate of CAD0.70 is possible.

Crius is taking the present action “to strengthen our business for the long-term benefit of our
unitholders,” according to CEO Michael Fallquist.

Management anticipates the dividend cut will help Crius “rebuild the capital” necessary for “long-term success” and manage through a “temporary” slowdown in net customer
growth. Customer attraction and retention has grown more difficult as Crius has tried to pass through higher variable rates.

Management will also work on cutting costs and improving efficiency as it also tries to grow the business geographically and by expanding solar and natural gas sales. Crius, after a steep decline for its unit price on the TSX from above CAD7 in November 2013 to a post-cut low of CAD3.36 established March 7, 2014, will likely embark on a buyback program as well. Crius is a hold.

Equal Energy Ltd (TSX: EQU, NYSE: EQU), pursuant to the agreement by which Petroflow Energy Corp will acquire it, won’t pay a first-quarter dividend.

According to terms of a deal announced Dec. 6, 2013, Equal shareholders will receive USD5.43 per share in cash. Paying a dividend would reduce that amount by one equal to the dividend. Equal’s last dividend will therefore be the “permitted dividend,” according to the terms of the merger agreement, paid Dec. 20, 2013, to shareholders of record as of Dec. 2, 2013. Equal is a hold pending completion of its acquisition by Petroflow.

Atlantic Power Corp (TSX: ATP, NYSE: AT) reported 2013 project income of USD64.3 million compared to a project loss of USD29.4 million in 2012, though cash available for distribution declined by USD22.8 million to USD108.8 million.

Management’s prepared remarks and answers to analysts’ questions during the company’s third-quarter conference call left open the distinct possibility of another dividend cut announcement in early 2014. Such a move has apparently been put off, as Atlantic continues to make other moves to repair its balance sheet.

Delaying what seems an inevitable follow-on dividend has given some lift to the share price. If you haven’t exited yet this could be your opportunity to do so. Sell.

Barrick Gold Corp (TSX: ABX, NYSE: ABX) posted a 2013 net loss of CAD10.37 billion, or CAD10.14 per share, including after-tax impairment charges of CAD11.54 billion. Adjusted net earnings were CAD2.57 billion, or CAD2.51 per share, while operating cash flow of CAD4.24 billion demonstrates the underlying business remains viable.

And the recent surge in the price of gold bullion will certainly help matter.

Barrick’s balance sheet is still shaky, burdened by USD15.8 billion of debt, though only USD1.8 billion is maturing between now and the end of 2015. Sell.

Bonavista Energy Corp (TSX: BNP, OTC: BNPUF) reported a 26 percent increase in 2013 funds from operations (FFO) compared to 2012, with FFO per share up 12 percent, as better natural gas prices and management’s focus on operating and capital efficiencies drove growth.

Costs of adding production declined to approximately CAD21,000 per barrel of oil equivalent per day (boe/d) during the fourth quarter, down from CAD32,500 per boe/d during the prior corresponding period.

Operating costs improved by 2 percent to CAD8.93 per boe from CAD9.07 per boe in 2012. Operating costs for the three months ended Dec. 31, 2013, were CAD8.77 per boe.

Bonavista posted record average annual production of 73,406 boe/d, a 6 percent increase over 2012. Fourth-quarter production averaged 75,072 boe/d. The company is currently producing approximately 74,000 boe/d, net of recent dispositions of approximately 2,500 boe/d during the first quarter for proceeds of CAD103 million. Buy under USD16.

Capstone Infrastructure Corp (TSX: CSE, OTC: MCQPF) reported 8.9 percent growth in revenue for 2013 compared to 2012, primarily due to Bristol Water, where regulated water tariffs and water consumption were higher than in 2012, and to higher power production attributable to the Cardinal gas cogeneration facility, Erie Shores and the contribution from the operating wind power facilities acquired on Oct. 1, 2013.

Adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) were up 6.7 percent, driven primarily by Bristol Water and higher power production at Cardinal and Erie Shores, along with the contribution from the new wind facilities.

Adjusted funds from operations were up 12.3 percent.

Capstone is seeking a new power-purchase agreement (PPA) for the Cardinal plant with the Ontario Power Authority (OPA). But negotiations have taken much longer than management anticipated. It’s likely that Capstone’s negotiations will continue into the middle of 2014.

It is highly likely that Capstone and the OPA will reach a new PPA covering Cardinal. It’s also highly likely that the new PPA will make Cardinal “dispatchable,” or able to ramp up and down in response to the needs of Ontario’s power system. Management noted in its statement announcing fourth-quarter and full-year 2013 results that it’s “advancing its plans to convert the facility and prepare it for dispatchable operations.”

Dispatchable plants receive two types of revenue from the utility: payment for energy produced and a capacity payment based on the plant’s ability to respond to system needs.

The capacity factor for dispatchable facilities varies greatly. They’re switched on whenever demand is high or moderate or when renewable power production is low. They’re switched off at times of low demand or high production from renewables.

Such plants usually operate at capacity factors between 30 percent and 70 percent with more efficient, low-cost facilities operating at higher capacity factors.

In 2012 and 2013 Cardinal ran at a capacity factor equal to over 90 percent. New capacity payments would go some way to making up for the lost revenue when Cardinal no longer operates as a baseload facility. But at this stage it seems highly likely, as the market is clearly pricing in, that management will cut the dividend.

Capstone Infrastructure is a hold.

Colabor Group Inc (TSX: GCL, OTC: COLFF) reported a 1.9 percent decline in third-quarter sales to CAD343.6 million, though management emphasized the improvement compared to the second quarter and highlighted cost savings that are part of its turnaround strategy.

The dividend rate was maintained at CAD0.06 per share. Hold.

Crius Energy Trust’s (TSX: KWH-U, OTC: CRIUF) inclusion on the Watch List is explained above. Hold.

Eagle Energy Trust’s (TSX: EGL-U, OTC: ENYTF) third-quarter production was flat sequentially but up 8 percent year over year at 3,052 boe/d. Output growth on a year-to-date basis is up 22 percent.

FFO was up 17 percent to CAD11.6 million, or CAD0.37 per share, and the payout ratio for the period was down to 41 percent versus 67 percent for the second quarter. Management reiterated its 2013 guidance.

The small producer’s fortunes remain particularly tied to ups and downs of commodity prices. Hold.

FP Newspapers Inc (TSX: FP, OTC: FPNUF) reported a decline in third-quarter net income to CAD900,000, or CAD0.125 per share, from CAD1 million, or CAD0.141 per share a year ago. Revenue for FP Canadian Newspapers LP, in which FP Newspapers holds a 49 percent stake, slid by 4.5 percent to CAD25.1 million.

Management once again maintained the CAD0.05 dividend rate for the January payment due Feb. 28. But the payout ratio for the fourth quarter is likely to at least approximate the 200 percent figure for the third quarter. Sell.

Freehold Royalties Ltd (TSX: FRU, OTC: FRHLF) reported a 1 percent increase in third-quarter production to 8,699 boe/d, while average realized prices were up 23 percent.

This combination drove a 39 percent increase in FFO to CAD36.4 million, or CAD0.54 per share. The payout ratio for the period came down to 78 percent from 93 percent in the second quarter.

Debt reduction efforts have been significant and successful. But there’s not much margin for error for a relatively small producer that’s dependent on commodity prices rather than production growth to drive FFO growth and dividend stability. Hold.

GMP Capital Inc (TSX: GMP, GMPXF) reported a 17.9 percent decline in 2013 revenue to CAD219.5 million. Net income was CAD9.6 million, up from CAD6.1 million a year ago, and the loss per diluted share shrank to CAD0.02 from CAD0.04. The payout ratio was once again negative.

Management, though, expressed optimism about 2014 based on trading conditions during the latter part of 2013 and in early 2014. Sell.

Labrador Iron Ore Royalty Corp (TSX: LIF, OTC: LIFZF) posted 2013 adjusted cash flow of CAD115.4 million, or CAD1.80 per share, up from CAD75.1 million, or CAD1.17 per share, for 2012. Sales volumes for Iron Ore Company of Canada were 14.8 million metric tons, up from 14.1 million a year ago.

The ultimate fate of the dividend is tied to what happens with the facility that generates Labrador’s cash flow. Rio Tinto’s (London: RIO, ASX: RIO, NYSE: RIO) efforts to sell its controlling stake have thus far been unsuccessful. Hold.

Northland Power Inc (TSX: NPI, OTC: NPIFF) reported a 54.1 percent increase in 2013 revenue to CAD557.2 million, while free cash flow more than doubled to CAD130.1 million. Electricity sales volumes were up 41.4 percent, and the addition of new projects and capacity continues in early 2014.

Northland is clearly on the way toward fulfilling management’s forecast that free cash flow will cover the dividend in 2014. Hold.

Parallel Energy Trust’s (TSX: PLT-U, OTC: PEYTF) reported preliminary 2013 average daily production of approximately 7,150 barrels of oil equivalent per day (boe/d), a 20 percent year-over-year increase. Fourth-quarter output reached 7,250 boe/d, as the small producer overcame difficult weather conditions in November and December.

Parallel reported a 22.5 percent increase in third-quarter production on a year-over-year basis but a 4.8 percent sequential decline to 7,100 boe/d. Funds from operations (FFO) were off by 4.4 percent compared to the second quarter but up 27.9 percent year over to CAD10.8 million, or CAD0.20 per share. The payout ratio crept up to 74 percent from 70 percent in the second quarter.

This small producer already has one dividend cut under its belt, though fourth-quarter production trends were solid. FFO for the period will be key. Hold.

Precious Metals & Mining Trust’s (TSX: MMP-U, OTC: PMMTF) manager, Sentry Investments Inc, 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 became 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.

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. Sell.

Ten Peaks Coffee Company Inc (TSX: TPK, OTC: SWSSF) reported a 5.5 percent slide in third-quarter sales, but gross profit was up 17.6 percent to CAD1.4 million and EBITDA more than doubled to CAD1.1 million as new business and market-share gains drove volume growth despite lower prices.

Coffee is still a tough, volatile business, and it’s a hard model on which to base a dividend-paying business. Hold.

TransAlta Corp’s (TSX: TA, NYSE: TAC) inclusion on the Watch List is explained above. Hold.

Zargon Oil & Gas Ltd (TSX: ZAR, OTC: ZARFF) reported a 2 percent sequential increase in third-quarter production to 7,560 boe/d, as natural gas output rose 11 percent compared to the second quarter.

Funds from operations were up 3 percent to CAD16.5 million, or CAD0.55 per share.