We have no additions to or subtractions from the How They Rate coverage universe this month.

Our evaluation of the coverage universe is ongoing, as we streamline our focus to companies with realistic opportunities to build wealth for investors for the long term, keeping in mind too that part of the rationale for building a coverage universe is to provide context and comparison.

Advice Changes

Advantage Oil & Gas Ltd (TSX: AAV, NYSE: AAV–From Hold to Buy < 7. Results for the first quarter of 2014 suggest management’s plan to reorient operations around the Montney Shale formation is a wise one. Funds from operations per share were up 108 percent, as management cut operating costs by 68 percent and administrative costs by 57 percent, the latter largely via the sale of the Longview Oil Corp stake.

Debt reduction continues apace, with another CAD111 million cut during the quarter, bringing the total outstanding down to CAD188 million.

Bonavista Energy Corp (TSX: BNP, OTC: BNPUF)–From Hold to Buy < 16. Management reported a 38 percent jump in first-quarter production revenue, as funds from operations per share grew by 40 percent to CAD0.80. Output was up 2 percent to 73,936 barrels of oil equivalent per day (boe/d), and operating netback rose by 39 percent to CAD27.01 per boe.

The payout ratio for the period was 26.3 percent.

Management’s longer-term efforts to control costs and reduce debt are beginning to pay off. Recent asset sales mean the company has exited heavy-oil production, with proceeds used to add approximately 1,000 barrels of oil equivalent per day of liquids-rich natural gas assets in the Glauconite formation. Management is evaluating additional transactions of this size and type.

Empire Company Ltd (TSX: EMP/A, OTC: EMLAF)–From Hold to Buy < 65. A selloff that’s taken the share price from CAD83.24 on Sept. 9, 2013, to CAD65.44 as of June 5, 2014, is well overdone for this diversified services company with food retailing operations, including the Sobeys grocery chain, and real estate investments, including a 41.6 percent stake in Crombie REIT (TSX: CRR-U, OTC: CROMF).

Empire has never cut its dividend; in fact it’s announced a dividend increase every June since 2002 and will likely do so again on June 30, 2014. The yield is modest at 1.6 percent, but it’s solid.

And there seems to be compelling value as well, with the stock trading at just 1.06 times book value at 14.15 times estimated fiscal 2014 earnings.

Fiscal 2014 fourth-quarter results will likely be impacted by the severe winter. But for the long term Empire, at these levels, looks attractive.

Liquor Stores NA Ltd (TSX: LIQ, OTC: LQSIF)–From Buy < 14 to Hold. A turnaround strategy is driving up administrative costs at the same time management is trying to grow the business via the addition of new stores. Same-store sales growth in Canada and the US, meanwhile, was negative in the first quarter, suggesting the business model is not immune to the economic cycle.

And the payout ratio for the three months ended March 31, 2014, was negative.

There are no debt maturities before the end of 2015, though there are significant rollovers looming in 2016 and 2018, amounting to 70.3 percent of current market capitalization.

Liquor Stores earns Safety Rating points for its debt as a percentage of assets and its operation in a sector traditionally viewed as recession-resistant, alcohol. But there are serious signs of weakness here.

Rating Changes

We have many Safety Rating changes this month in the aftermath of first-quarter reporting season.

Advantage Oil & Gas Ltd (TSX: AAV, NYSE: AAV)–From 0 to 1. The company earns a single point because overall debt as a percentage of assets is less than 30 percent.

Algonquin Power & Utilities Corp (TSX: AQN, OTC: AQUNF)–From 5 to 6. The renewable power producer’s last dividend cut came in October 2008, so it has no cuts within the last five years. It operates in a relatively stable industry, with generation assets covered by long-term power purchase agreements that provide predictable cash flows. The payout ratio is below the “Very Safe” threshold, with visibility over the next 18 to 24 months. Overall debt as a percentage of assets is also “Very Safe,” and obligations coming due before Dec. 31, 2015, amount to just 6.3 percent of market capitalization.

Atlantic Power Corp (TSX: ATP, NYSE: AT)–From 2 to 0. The struggling owner/operator of North American power generating assets posted a negative payout ratio for the first quarter. Its exposure to a volatile merchant power market is the source of much of its problems over the past 20 months, while overall debt and obligations coming due before Dec. 31, 2015, both are outside of our comfort zones.

ARC Resources Ltd (TSX: ARX, OTC: AETUF)–From 3 to 5. The oil and gas producer has a trailing-12-month payout ratio well below the 50 percent threshold below which it’s considered “Very Safe” under the Safety Rating System, and it’s likely to remain so for the next 18 to 24 months based on forecast production growth and management’s focus on reinvesting cash into the business.

Debt as a percentage of total assets is low for its sector, and there are minimal obligations coming due between now and Dec. 31, 2015.

In addition to earning four points on the payout ratio and debt criteria, ARC earns another point because its last dividend cut was more than five years ago, in May 2009.

Athabasca Oil Corp (TSX: ATH, OTC: ATHOF)–From 0 to 2. The company gets a point because overall debt as a percentage of assets is well below the threshold considered “Very Safe” under the Safety Rating System and another because it has no obligations coming due before 2017, implying low credit risk.

Bellatrix Exploration Ltd (TSX: BXE, NYSE: BXE)–From 2 to 1. Bellatrix loses a point because debt coming due before Dec. 31, 2015, as a percentage of market capitalization now exceeds 20 percent, above our comfort threshold of 10 percent. Overall debt as a percentage of assets remains in the “Very Safe” range.

Bonavista Energy Corp (TSX: BNP, OTC: BNPUF)–From 2 to 4. Bonavista’s trailing-12-month payout ratio is well below the “Very Safe” threshold and is likely to remain there.

There are no maturities coming due until 2016, and total debt as a percentage of assets is less than 30 percent. And recent production results have been solid. This all suggests the current dividend rate of CAD0.07 per month is safe for the medium term.

Cameco Corp (TSX: CCO, NYSE: CCJ)–From 3 to 4. The uranium producer has never cut its dividend, not even during the last, highly stressful five-and-a-half years. The trailing-12-month payout ratio is 34.8 percent, well below the 50 percent “Very Safe” threshold for Natural Resources companies, though whether it will remain so for the next 18 to 24 months is in question due to the delayed recovery for uranium prices in the aftermath of the March 2011 Fukushima Dai-ichi nuclear disaster in Japan.

Total debt as a percentage of assets is likewise “Very Safe,” and there are minimal maturities between now and the end of 2015.

Canadian Natural Resources Ltd (TSX: CNQ, NYSE: CNQ)–From 4 to 5. Canadian Natural has never cut its dividend, not even during the Great Recession/Global Financial Crisis. A consistently low payout ratio earns it another two points under the Safety Rating System. A well-managed balance-sheet, with low overall debt as a percentage of assets and minimal obligations coming due before Dec. 31, 2015, earn it another two points.

Canadian Utilities (TSX: CU, OTC: CDUAF)–From 4 to 6. This diversified electric and gas utility has never cut its dividend, earning it a Safety Rating System point. Its utility operations generate stable cash flow, earning it another point. Overall debt and debt coming due by the end of 2015 are both well within our comfort zones, as is the payout ratio, which is also on a stable track for the medium term.

EnCana Corp (TSX: ECA, NYSE: ECA)–From 2 to 3. Total debt as a percentage of assets is high, but obligations coming due before Dec. 31, 2015, are more than manageable. And the trailing-12-month payout ratio, in the aftermath of the 65 percent dividend cut announced in November 2013, is just 26.5 percent. The first-quarter payout ratio was just 18.4 percent.

IBI Group Inc (TSX: IBG, OTC: IBIBF)–From 1 to 0. IBI’s current financial and operating profiles offer no supportive evidence satisfying any of the Safety Rating System criteria at present, as it eliminated its dividend just a year and therefore has no payout ratio and its overall and short-term debt situations are potentially debilitating. And its business is not resilient enough to endure through the cycle.

Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–From 5 to 4. The CE Portfolio Conservative Holding loses a Safety Rating point because its trailing-12-month payout ratio ticked up to 111.9 percent as of March 31, 2014, above the 110 percent threshold that marks entry to “At Risk” territory.

Just Energy Group Inc (TSX: JE, NYSE: JE)–From 3 to 1. The fiscal 2014 payout ratio based on “base” funds from operations was 112.3 percent, well into the “At Risk” zone for Gas/Propane companies.

Fiscal 2015 base earnings before interest, taxation, depreciation and amortization (EBITDA) guidance of CAD220 million to CAD220 million and base FFO “in excess of” the dividend (approximately CAD125 million) suggest very little room for error. Overall debt as a percentage of assets is also high, as are maturities coming due before the end of 2015.

Management cut the dividend in March 2013, and another reduction, as it attempts to pay down debt while growing the business, is very possible.

Leisureworld Senior Care Corp (TSX: LW, OTC: LWSCF)–From 3 to 4. The long-term care and retirement facility operator has maintained its current dividend level for more than five years, supported by the relatively predictable cash flow generated from its health care niche. The payout ratio is below our “Very Safe” threshold, and it has minimal debt coming due before the end of 2015.

Liquor Stores NA Ltd (TSX: LIQ, OTC: LQSIF)–From 4 to 2. A turnaround strategy is driving up administrative costs at the same time management is trying to grow the business via the addition of new stores.

Same-store sales growth in Canada and the US, meanwhile, was negative in the first quarter, suggesting the business model is not immune to the economic cycle.

And the payout ratio for the three months ended March 31, 2014, was negative.

There are no debt maturities before the end of 2015, though there are significant rollovers looming in 2016 and 2018, amounting to 70.3 percent of current market capitalization.

Liquor Stores earns Safety Rating points for its debt as a percentage of assets and its operation in a sector traditionally viewed as recession-resistant, alcohol. But there are serious signs of weakness here.

Northland Power Inc (TSX: NPI, OTC: NPIFF)–From 5 to 4. Northland fails to earn any of the two points available under the Safety Rating System based on debt metrics, as its overall debt is more than 60 percent of total assets and its obligations coming due before the end of 2015 represent 14.1 percent of market capitalization, above our favored threshold of 10 percent.

Primary Energy Recycling Inc (TSX: PRI, OTC: PENGF)–From 2 to 3. Primary Energy is entitled to another point because its payout ratio is low relative to its peers, though its reliance on steelmaking operations to produce its power opens it up to more market-based forces than is typical for a power generator, its overall debt is low and so are maturities before Dec. 31, 2015.

Suncor Energy Inc (TSX: SU, NYSE: SU)–From 4 to 5. Like Canadian Natural, Suncor has never cut its dividend, not even during the Great Recession/Global Financial Crisis. It too maintains a consistently low payout ratio, while low overall debt as a percentage of assets and minimal obligations coming due before Dec. 31, 2015, earn it another two points.