Editor’s Note: In Brief is the executive summary of the October 2011 issue of Canadian Edge. Please use it as a guide to reading the issue. — RC

When a stock drops 30 percent, it takes three years for a 10 percent yield alone to make up the loss. That’s a depressing fact, until you realize there’s an obvious catalyst for a much faster recovery.

Mainly, when a dividend-paying stock drops that far and that fast, it’s because investors expect a dividend cut, and possibly a steep one. When those fears diminish, the stock will bounce back to recover its lost ground. That’s what happened in the aftermath of the 2008 crash. And the only pre-requisite for recovery was simply maintaining dividends.

To be sure, outside of a handful of power and pipeline companies and REITs, it’s been a tough couple of months to own Canadian stocks. And US investors’ losses have been further extended by a 10 percent slide in the Canadian dollar.

More than half the companies tracked in the Canadian Edge coverage universe are down at least 20 percent year to date. Some two-dozen stocks yield at least 10 percent, with another 20 dishing out between 8 and 10 percent, all clearly pricing in dividend cuts.

I call it the “Yellow” disease. Investors seem to be assuming that every high yielding company will go the way of Yellow Media Inc (TSX: YLO, OTC: YLWPF). That’s understandable, given that Yellow suffered its final coup de grace last month. Management eliminated its dividend and all but admitted Yellow was at the mercy of creditors, with little hope for retaining any shareholder value.

Even in 2008, however, the vast majority of companies tracked in How They Rate never cut dividends. Their stocks dropped during the crash. But they did recover all that lost ground and more, and a lot sooner than expected besides.

As in 2008, there’s plenty to be worried about now. Europe remains barely a step ahead of a full-out currency and banking crisis that could morph into much tighter credit conditions on this side of the Atlantic. The US economy, though still not in recession, remains mired in the same slow and jagged growth it’s been in since early 2009. And the torrid growth of emerging markets–the world’s engine of expansion the past few years–may be cooling off a bit.

As long as companies can maintain their dividends, however, their stocks will recover the pounding they’re taking now. And US investors’ gains will be compounded by a recovery in the Canadian dollar, just as losses are magnified now.

Making sure your holdings are set to hold dividends then is priority No. 1 now. And helping you do just that is the chief goal of this issue of Canadian Edge.

Unfortunately, some individual companies will falter in an environment like this one, Yellow Media being the latest and greatest example. The two biggest reasons are faltering revenues and debt. In a worst-case, the two combined will not only cause dividend cuts but can literally wipe out shareholder value, as lenders basically subject the company to a giant margin call.

That, in fact, is what happened to Yellow. I was one of those who rode the stock down to barely a dollar, advising to sell only in the August issue. To boost my odds of avoiding another such debacle, I’ve toughened my CE Safety Rating System’s assessment of exposure to revenue and debt risk. The result is a large number of ratings changes, detailed below and in How They Rate.

The good news is most companies still stack up well on both counts. That’s why dividend increases in the How They Rate universe continue to vastly outnumber dividend cuts.

The timing of a share-price recovery is going to depend on macro factors outside individual companies’ control. In fact, company developments are likely to be virtually ignored, unless they do involve something disastrous like a dividend cut.

Ironically, one potential catalyst for higher prices is the US economy, an albatross around Canada’s neck for the past several years. The US dollar’s sharp bounce against the loonie alone will boost numbers of companies doing business south of the border.

Other good signs at companies from Atlantic Power Corp (TSX: ATP, NYSE: AT) to Toronto-Dominion Bank (TSX: TD, NYSE: TD) hint the lift might be greater and longer-lasting.

Another is simply for the macro situation to beat expectations by being not the outright disaster so many expect. The US economy is still not in recession, and companies are still able to borrow at the lowest rates in 50 years-plus. Few have the kind of near-term refinancing needs that would leave them exposed to a contagion from overseas.

Those are all stark contrasts with late 2008. Moreover, unlike that time investors, companies and governments are hunkered down for disaster. Historically, that’s not the point at which real selloffs begin.

Calling a bottom is not my forte. But this market is clearly priced for a real-world calamity that hasn’t yet occurred. And in the past that’s been the place where major rallies do begin.

The key is to separate companies that will hold dividends from companies that can’t. To avoid another Yellow, I’m resolved to sell much faster when there are signs of weakness. But if any other Canadian Edge stocks do cut dividends, we’ll be cutting them loose.

Finally, there’s no better protection against dividend cuts than old-fashioned diversification. Unless you’re a long-distance mind-reader, you’re not going to catch every company’s stumbles before they become public. But spreading your bets–coupled with careful selection–ensures one misstep won’t sink your portfolio. And your other positions will ensure you’ll share in what should be a powerful recovery in the coming months.

Portfolio Action

There are no new “buys” or “sells” in the Canadian Edge Portfolio this month. I am, however, putting all of my Holdings under the microscope to determine how vulnerable their dividends would be if economic and credit market conditions truly worsen. Portfolio Update presents a comprehensive table showing how each stock stacks up according to my CE Safety Rating System.

Note that Portfolio stocks cover the risk spectrum. Most don’t all meet all six of my ratings criteria. Rather, I look for the right combination of potential risk and reward, though some investors will want to focus only on the most conservative stocks.

I’ve cut Daylight Energy Ltd (TSX: DAY, OTC: DAYYF) and Perpetual Energy Inc (TSX: PMT, OTC: PMGYF) to hold, due to the recent drop in natural gas prices to the neighborhood of USD3.50 per million British thermal units. Both stocks’ prices already reflect that lower level and would rebound sharply on any sign of life in the clean fuel. On the other hand, both would face some financial pressure if prices fell further still, so there’s no point in anyone buying more. If you own either stock, stick with it.

I’ve raised my buy target for Cineplex Inc (TSX: CGX, OTC: CPXGF) to USD25, reflecting its strong business performance and lack of financial risk even in this environment.

I’ve reduced my buy target on Ag Growth International Inc (TSX: AFN, OTC: AGGZF) to USD40, reflecting management’s slight downward revision in expected third-quarter revenue to CAD81 million from a prior CAD86 million, which makes a sizeable dividend increase later this year less likely. The company’s longer-run growth prospects are not diminished, however, and my expectation is that the stock will eventually move well past the prior target of USD50.

High Yield of the Month

High Yield of the Month features the two best buys for September. If you’re starting a portfolio, buying HYOMs each month is one good strategy, provided the picks meet your own risk/reward preferences.

This month’s picks are both power generators in the Conservative Holdings, offering outstanding upside and high yields: Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF) and Capstone Infrastructure Corp (TSX: CSE, OTC: MCQPF). Both announced transformational mergers in the past few weeks that will spur cash flow and distribution growth going forward. Both derive all their cash flow from very steady essential-service assets, which are recession-resistant.

Brookfield Renewable will boost its dividend 5 percent when it completes its takeover of parent Brookfield Asset Management’s (TSX: BAM/A, NYSE: BAM) other hydropower assets, and 3 to 5 percent a year thereafter. Capstone already yields nearly 11 percent, but its purchase of 70 percent of Bristol Water of the UK further safeguards the existing payout with secure and reliable cash flow.

Brookfield Renewable Power is a buy up to USD25. Capstone Infrastructure is a buy up to USD9, for those who don’t already own it.

Feature Article

Even the biggest dividend yield won’t offset a falling stock price, particularly in this volatile market. But maintaining–or, better, increasing–the current level of dividends ensures a full recovery by stocks when the markets inevitably calm down.

This month I focus on the recent selloff and highlight the principle risks to dividends now: the threat of falling revenue should the sluggish growth environment once again become a full-fledged recession, and elevated levels of debt that expose companies to what amounts to margin calls from primary lenders.

I unmask a handful of companies tracked in How They Rate that are at risk to bankruptcy, even if credit conditions don’t tighten meaningfully. I also separate out a handful of stocks that don’t carry the business risks that are currently baked into their share prices, which have potentially dramatic upside as well as extremely high yields.

Canadian Currents

Patience is not just a virtue. It’s absolutely critical to successful income investing, which inherently requires long-term thinking. With overall market volatility this super-charged, it can be tough to be patient.

Fortunately, Associate editor David Dittman has the cure in this month’s Canadian Currents, as he looks at the performance of the original Canadian Edge Portfolio, which we launched in summer 2004, as well as the initial members of How They Rate. The average gain of 100 percent-plus for the original Portfolio since then is a powerful testament to buy-and-hold.

Tips on Trusts

This section features short bits on a wide range of topics. For more evergreen and tutorial items, see the Subscriber’s Guide.

Dividend Watch List–Two-dozen How They Rate companies currently yield more than 10 percent, a level clearly pricing in a sizeable dividend cut. Yet only two companies in the coverage universe actually cut payouts last month.

One was Yellow Media Inc (TSX: YLO, OTC: YLWPF). The directory company eliminated its dividend, wrote off CAD2.9 billion and paid down CAD500 million in debt. But it provided little guidance on the progress of its transition from print to digital. The next scheduled debt maturity isn’t until 2013. But the company still has some CAD2.34 billion in debt outstanding, and current yields on its bonds indicate it would be prohibitively expensive to refinance at this time.

There’s not much shareholder value left at the current price of roughly 16 cents. But my advice is the same as it’s been the past couple months: Sell.

The other was Zargon Oil & Gas Ltd (TSX: ZAR, OTC: ZARFF), which trimmed its payout by 28.6 percent. Management blamed the drop in oil prices for the cut, but rising costs and disappointing production were also to blame. The lower yield should be sustainable, barring a drop in oil to USD60 or lower. Hold.

Here’s the rest of the Watch List. Note a few more names have joined the List in the past month, owing to the tightening of my Safety Rating criteria.

Aston Hill Income Fund (TSX: VIP-U, OTC: BVPIF)–Advice: SELL. Management has changed the name of the fund from Brompton Stable Income Fund, but the payout still vastly exceeds investment income.

AvenEx Energy Corp (TSX: AVF, OTC: AVNDF)–Advice: Buy @ 7. Life gets hard for small energy producers when oil and gas prices fall. The numbers are still solid, but until energy bounces back investors should be cautious.

Canfor Pulp Products Inc (TSX: CFX, OTC: CFPUF)–Advice: Hold. A weakening of Asian economies would hurt demand for pulp and crimp cash flows.

Chartwell Seniors Housing REIT (TSX: CSH-U, OTC: CWSRF)–Advice: Hold. Operations appear to have stabilized, but there’s CAD51 million outstanding on an CAD85 million credit line that must be rolled over by Jun. 23, 2012, as well as a CAD75 million bond maturing May 1, 2012. That may be a challenge to roll over, and the payout ratio is high already.

Chorus Aviation Inc (TSX: CHR/B, OTC: CHRVF)–Advice: Buy @ 5. All the numbers look good here. But maintaining strength going forward will depend on the health of Air Canada (TSX: AC/A, OTC: AIDIF), which would be in doubt if North America entered a prolonged recession. This one is for risk takers only.

CML Healthcare Inc (TSX: CLC, OTC: CMHIF)–Advice: SELL. As long as the US economy is weak and Uncle Sam is looking for ways to cut Medicare costs, this company’s US operations will be a drain. An improved US dollar exchange rate should help second-half 2011 results.

Daylight Energy Ltd (TSX: DAY, OTC: DAYYF)–Advice: Hold. The steep decline in natural gas prices isn’t immediately disastrous, but it does mean more financial pressure. I want to see third-quarter earnings before advising anyone to buy more of this one.

EnerVest Energy & Oil Sands Total Return Trust (TSX: EOS, OTC: EOSOF)–Advice: SELL. The drop in oil and gas stocks means the dividend can only be covered by eating into capital.

FP Newspapers Inc (TSX: FP, OTC: FPNUF)–Advice: Buy @ 5. The company was able to cut the annual costs of funding a pension shortfall nearly in half to just CAD800,000 a year. The core print and advertising business is still slipping, but this means more cash to support the dividend.

Freehold Royalties Ltd (TSX: FRU, OTC: FRHLF)–Advice: Hold. After dropping due to higher oil prices in the first half of 2011, the payout ratio is likely to rise again on lower oil in the second half.

InterRent REIT (TSX: IIP-U, OTC: IIPZF)–Advice: Hold. I’m waiting for another good quarter to drop this apartment owner from the Watch List.

NAL Energy Corp (TSX: NAE, OTC: NOIGF)–Advice: Hold. The company is beating its production goals. The question is if profits will hold up in the face of sharply lower oil and gas prices.

Perpetual Energy Inc (TSX: PMT, OTC: PMGYF)–Advice: Hold. The drop in natural gas prices to the neighborhood of USD3.50 per million British thermal units was within management’s guidance range. But it will put further pressure on the company’s ability to pay down debt and continue its development of liquids assets.

PetroBakken Energy Ltd (TSX: PBN, OTC: PBKEF)–Advice: Hold. Production appears to be recovering, but lower oil prices and higher costs are a growing risk.

Precious Metals & Mining Trust (TSX: MMP-U, OTC: PMMTF)–Advice: Hold. The fund’s gold and silver mining stocks are lagging the metals’ prices, which means dividends will likely continue to be funded out of capital.

Superior Plus Corp (TSX: SPB, OTC: SUUIF)–Advice: Hold. DBRS has now cut the company’s senior credit rating to junk. That could make debt servicing more difficult at the same time the company is experiencing tough conditions in its chemicals and construction materials businesses.

Ten Peaks Coffee Company Inc (TSX: TPK, OTCL SWSSF)–Advice: SELL. The US dollar’s recent rebound should lift second half net but competition is still tough and the margin for error slim.

Bay Street Beat–How the Canadian analyst community views trusts, including our favorite trusts. This month, associate editor David Dittman plunges into the Oil & Gas sector.

Tips on Drips–Reinvest your dividends paid by NYSE-listed Canadian companies–in some cases at a discount and without paying commissions..

How They Rate

CE Safety Ratings are based on six operating and financial criteria. Companies meeting all six criteria are rated my highest rating of “6.” “0” is the lowest rating, indicating companies that meet no safety criteria. Safety criteria are described in the text below the How They Rate table and are as follows:

• One point if Payout ratio meets “very safe” criteria for the sector.
• One point if Payout ratio has longer-term visibility.
• One point if Debt/Assets ratio meets “very safe” criteria for the sector.
• One point if the company’s debt maturing before Jan. 1, 2013, is less than 10 percent of its market capitalization.
• One point if the company’s primary business is recession-resistant. Qualifying varies from company to company, though virtually all Electric Power and Energy Infrastructure companies qualify, while no Energy Services companies do.
• One point if the company has not cut its distribution over the preceding five years.

I list trusts and high-yielding corporations by the following sectors:

• Oil and Gas–All energy producers are included here.
• Electric Power–Power generators.
• Gas/Propane–Distributors from propane to packaged ice.
• Business Trusts–A range of businesses involved principally with consumers.
• REITs–All qualified real estate investment trusts.
• Trust Mutual Funds–Closed-end funds holding portfolios of individual trusts.
• Natural Resources–Trusts and corporations that produce resources and raw materials other than oil and gas.
• Energy Services–Trusts and corporations whose main business is providing drilling, environmental or other services to energy producers.
• Energy Infrastructure–Trusts and corporations that own primarily pipelines, processing facilities and other fee-generating assets.
• Information Technology–Trusts and corporations that provide communications, newspaper, directory and other information services.
• Financial Services–Canada’s banks, investment houses and other trusts and corporations feeding that business.
• Food and Hospitality–Trusts and corporations that franchise restaurants, own and operate hotels and manufacture and distribute food and beverages.
• Health Care–Trusts and corporations involved in the medical care and/or supply business.
• Transports–These trusts and corporations ship freight and move passengers by bus, truck, rail or air.

Coverage Changes

There’s one new addition to How They Rate this month: Avalon Rare Metals Inc (TSX: AVL, NYSE: AVL). The company explores for lithium, rubidium, cesium, tantalum, beryllium and rare earth elements in Canada. Its Thor Lake project is progressing toward production, largely free of environmental problems so far.

The company also has no debt and is selling more than 70 percent off its 52-week high. It’s for speculators only and doesn’t pay a dividend. It will be covered under Natural Resources. To make room for it I’m no longer tracking Priszm Income Fund, which is no longer listed on the Toronto Stock Exchange.

Advice Changes

Here are advice changes. See How They Rate for changes to “buy under” prices.

Advantage Oil & Gas Ltd (TSX: AAV, NYSE: AAV)–To Hold from Buy @ 10. The stock’s even cheaper relative to the value of its reserves in the ground. But the drop in natural gas to only about $3.50 per million British Thermal Units could put pressure on the balance sheet if sustained.

Bell Aliant Inc (TSX: BA, OTC: BLIAF)–To Hold from SELL. If you can own this stock legally, it’s a steady bet on what’s still a secure telecommunications franchise.

Bellatrix Exploration Ltd (TSX: BXE, OTC: BLLXF)–To Hold from Buy @ 6. As with Advantage, the downgrade is all about a small company dealing with a big drop in the price of its primary product, natural gas.

Canfor Pulp Products Inc (TSX: CFX, OTC: CFPUF)–To Hold from SELL. If you can hold this stock legally, it is the low cost player in the pulp business.

CurrencyShares Canadian Dollar Trust (NYSE: FXC)–To Buy @ 96 from Hold. The Canadian dollar’s drop against the US dollar has dropped it into value territory again.

Daylight Energy Ltd (TSX: DAY, OTC: DAYYF)–To Hold from Buy @ 11. A falling share price has made near-term debt maturities potentially less manageable. Low gas prices are likely to bite into second-half 2011 revenue as well.

Encana Corp (TSX: ECA, NYSE: ECA)–To Hold from Buy @ 30. With natural gas prices plunging, it’s best to see where they end up before buying North America’s premier pure play.

Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–To Buy @ 5 from Hold. Management has settled the refinancing issue and restored a dividend, and the stock has fallen sharply.

Norbord (TSX: NBD, OTC: NBRXF)–To SELL from Hold. Near-term debt maturities are more challenging after the recent drop in its share price.

Northland Power Inc (TSX: NPI, OTC: NPIFF)–To Buy @ 16 from Hold. The startup of a major wind farm secures more cash flows and likely puts the company ahead of management’s guidance for a payout ratio of 160 to 190 percent for 2011, with a steep decline in 2012.

Perpetual Energy Inc (TSX: PMT, OTC: PMGYF)–To Hold from Buy @ 5. The steep drop in natural gas prices is within management’s guidance but will still make it more difficult to fund capital spending and reduce debt, and for the stock to recover.

Superior Plus Corp (TSX: SPB, OTC: SUUIF)–To Hold from Buy @ 12. The recent drop in share price has made near-term debt maturities a bit more challenging.

Zargon Oil & Gas Ltd (TSX: ZAR, OTC: ZARFF)–Hold from Buy @ 18. The drop in oil prices and the company’s problems getting new production of liquids on line are worries for the second half of 2011. The dividend should be at a manageable level after last month’s cut. But it also dropped the stock to a level where near-term debt maturities are a big part of market capitalization.

Ratings Changes

Here are Safety Rating changes, reflecting second-quarter 2011 numbers, debt maturities remaining for 2011 and 2012, and recent weakness in energy prices.

Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–To 3 from 4. Weakness in global economy raises a question mark about future payout ratios.

Athabasca Oil Sands Corp (TSX: ATH, OTC: ATHOF)–To 1 from 0. There are no near-term debt maturities.

Atlantic Power Corp (TSX: ATP, NYSE: AT)–To 5 from 6. The company has put financing in place for its takeover of Capital Power LP and has won regulatory approvals for the deal as well. But until this deal is in the door and permanently financed, the company doesn’t get the top rating of 6.

Bell Aliant Inc (TSX: BA, OTC: BLIAF)–To 4 from 3. Near-term debt maturities don’t appear to be a problem.

Bellatrix Exploration Ltd (TSX: BXE, OTC: BLLXF)–To 1 from 2. Falling natural gas prices have taken down the share price to where looming debt maturities are potentially a much bigger threat.

Big Rock Brewery Inc (TSX: BR, OTC: BRBMF)–To 2 from 3. All systems appear to be “go,” but a weaker economy increases uncertainty the payout ratio can come down meaningfully.

Bird Construction Inc (TSX: BDT, OTC: BIRDF)–To 5 from 4. The acquisition of HJ O’Connell and subsequent winning of a major contract clears up the picture for future earnings.

Boston Pizza Royalties Income Fund (TSX: BPF-U, OTC: BPZZF)–To 3 from 2. There are no near-term debt maturity concerns.

Boyd Group Income Fund (TSX: BYD-U, OTC: BFGIF)–To 4 from 3. There are no near-term debt maturities.

Brookfield Real Estates Services Inc (TSX: BRE, OTC: BREUF)–To 4 from 5. A weaker economy puts future payout ratios into realm of uncertainty.

Calloway REIT (TSX: CWT-U, OTC: CWYUF)–To 4 from 3. There are no near-term debt maturities.

Canadian Apartment Properties REIT (TSX: CAR, OTC: CDPYF)–To 6 from 5. Refinancing risk is nil after an exhaustive effort in recent months by management.

Canadian Oil Sands Ltd (TSX: COS, OTC: COSWF)–To 3 from 2. Near-term debt maturities are minimal.

Canadian Pacific Railway (TSX: CP, NYSE: CP)–To 5 from 4. Near-term debt maturities come further under control.

Canfor Pulp Products Inc (TSX: CFX, OTC: CFPUF)–To 3 from 2. There are no near-term debt maturities.

Capstone Infrastructure Corp (TSX: CSE, OTC: MCQPF)–To 4 from 3. The purchase of 70 percent of a British water utility at last puts the cash from the Leisureworld sale to work, making management’s pledge to bring down the payout ratio a reality.

Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–To 3 from 4. Potential weakness in global markets makes future payout ratios less certain.

Chorus Aviation Inc (TSX: CHR/B, OTC: CHRVF)–To 3 from 4. Air Canada’s continuing weakness raises level of uncertainty about future earnings.

CI Financial Corp (TSX: CIX, OTC: CIFAF)–To 4 from 3. Near-term debt maturities have been whittled away and the core business is hanging in there.

Cineplex Inc (TSX: CGX, OTC: CPXGF)–To 6 from 5. Near-term debt maturities are no longer a big deal.

Clearwater Seafoods Inc (TSX: CLR, OTC: CWFOF)–To 1 from 0. Management has cleared away near-term credit concerns.

Cominar REIT (TSX: CUF-U, OTC: CMLEF)–To 4 from 3. A new credit deal eliminates near-term refinancing risk.

Contrans Inc (TSX: CSS, OTC: CTFIF)–To 3 from 2. Company has no near term debt maturities.

Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF)–To 5 from 4. The company no longer has meaningful near-term debt maturities.

Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–To 5 from 4. Near-term refinancing risk has been eliminated.

Daylight Energy Ltd (TSX: DAY, OTC: DAYYF)–To 3 from 4. A falling share price has made near-term debt maturities potentially less manageable.

Encana Corp (TSX: ECA, NYSE: ECA)–To 2 from 4. Energy is a volatile business, but only rarely does a giant come down two notches. Encana loses points on its prospective payout ratio and near-term debt maturities risk.

Equal Energy Ltd (TSX: EQU, NYSE: EQU)–To 0 from 1. Lower energy prices and a falling share price, because of cheaper oil, have made looming debt maturities more of a potential problem.

Extendicare REIT (TSX: EXE-U, OTC: EXETF)–To 3 from 4. Uncertainty with US Medicare system clouds future earnings picture.

First Asset Pipes & Power Income Fund (TSX: EWP-U, OTC: FAPPF)–To 5 from 4. If you want a fund of income paying Canadian companies, this one is solid.

First Quantum Minerals Ltd (TSX: FM, OTC: FQVLF)–To 2 from 1. The company is moving past the loss of its properties to expropriation in the so-called Democratic Republic of the Congo.

Fortis Inc (TSX: FTS, OTC: FRTSF)–To 4 from 3. Near term debt maturities are very much in line again.

FP Newspapers Inc (TSX: FP, OTC: FPNUF)–To 2 from 3. The company will be able to cut its payments to close its pension fund deficit in half but a weak economy makes future earnings less certain.

FutureMed Healthcare Inc (TSX: FMD, OTC: FMDHF)–To 2 from 3. A weaker economy could make it more difficult to bring down a high payout ratio.

GMP Capital Inc (TSX: GMP, OTC: GMPXF)–To 2 from 4. The company is solid, but its business remains cyclical.

HOMEQ Corp (TSX: HEQ, OTC: HEITF)–To 3 from 4. Near-term maturities should be easily manageable given the company’s current profitability, but they are hefty relative to company market capitalization.

iShare MSCI Canada Index Fund (NYSE: EWC)–To 3 from 2. Risks are less for this index exchange-traded fund after the recent drop in Canadian stocks.

Just Energy Group Inc (TSX: JE, OTC: JUSTF)–To 5 from 6. Management has affirmed the company is beating its guidance for fiscal 2012. But the extreme drop in natural gas prices will make it challenging to secure new high-margin contracts.

Liquor Stores NA Ltd (TSX: LIQ, OTC: LQSIF)–To 4 from 5. Near-term maturities look easily handled but are now larger relative to market capitalization.

Manitoba Telecom Services Inc (TSX: MBT, OTC: MOBAF)–To 4 from 3. Near-term debt maturities have been whittled away.

Medical Facilities Corp (TSX: DR, OTC: MFCSF)–To 3 from 2. The company has no near-term debt maturities.

MEG Energy Corp (TSX: MEG, OTC: MEGEF)–To 2 from 1. The company has no near-term debt maturities.

NAL Energy Corp (TSX: NAE, OTC: NOIGF)–To 2 from 3. Production targets are promising, but lower energy prices and a falling share price could make handling debt more difficult.

Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–To 3 from 2. Management has settled the refinancing issue and restored a dividend.

Norbord Inc (TSX: NBD, OTC: NBRXF)–To 0 from 1. Near-term debt maturities are more challenging after the recent drop in its share price.

Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–To 5 from 6. Management says income will be only slightly affected by the Canadian government’s prospective change in taxation of staple shares. Until the rules are set, however, there’s uncertainty about the future payout ratio.

Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–To 2 from 3. The key to the company is to execute on efficiency measures at its newly acquired operations.

Perpetual Energy Inc (TSX: PMT, OTC: PMGYF)–To 1 from 2. The steep drop in natural gas prices is within management’s guidance but will still make it more difficult to fund capital spending and reduce debt.

PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–To 3 from 2. There are no near-term debt maturities for the company.

Precision Drilling Corp (TSX: PD, NYSE: PDS)–To 2 from 1. There are no near-term debt maturities.

Provident Energy Ltd (TSX: PVE, NYSE: PVX)–To 3 from 4. Weakness in oil and natural gas prices raises questions about future payout ratios, though the dividend should still be secure.

Research in Motion (TSX: RIM, NSDQ: RIMM)–To 0 from 1. The drop in share price has made near-term debt maturities more challenging.

Rogers Sugar Inc (TSX: RSI, OTC: RSGUF)–To 2 from 1. There are no near-term debt maturities.

Royal Bank of Canada (TSX: RY, NYSE: RY)–To 4 from 5. Near-term maturities should be an opportunity to cut costs but also pose a risk.

Royal Host Inc (TSX: RYL, OTC: ROYHF)–To 1 from 0. Management has settled near-term financial needs with asset sales.

Student Transportation Inc (TSX: STB, NSDQ: STB)–To 5 from 4. Near-term debt maturities aren’t a big deal relative to cash flow and market capitalization.

Suncor Energy Inc (TSX: SU, NYSE: SU)–To 4 from 3. The company has eliminated all near-term debt maturities.

Superior Plus Corp (TSX: SPB, OTC: SUUIF)–To 2 from 3. The recent drop in share price has made near-term debt maturities a bit more challenging.

Ten Peaks Coffee Company Inc (TSX: TPK, OTC: SWSSF)–To 2 from 3. A rising US dollar is a near-term plus but is offset by the threat of economic weakness.

TransForce Inc (TSX: TFI, OTC: TFIFF)–To 5 from 4. Management has eliminated near-term refinancing risk, and earnings appear protected against economic weakness.

Trilogy Energy Corp (TSX: TET, OTC: TETZF)–To 4 from 3. The company has made good progress cutting debt and minimizing near-term refinancing risk.

WestJet Airlines Ltd (TSX: WJA, OTC: WJAFF)–To 4 from 3. Management is still boosting operating metrics despite weak economy, and there’s no near-term maturity concern.

Yellow Media Inc (TSX: YLO, OTC: YLWPF)–To 0 from 1. The company eliminated its dividend.

Zargon Oil & Gas Ltd (TSX: ZAR, OTC: ZARFF)–To 2 from 3. Last month’s dividend cut should take the payout to a manageable level. But it also dropped the stock to a level where near-term debt maturities are a big part of market capitalization.

For More

How They Rate has automatically updated US dollar unit/share prices, dividend payment rates in US dollars, yields, most recent dividend dates, dividend frequency and debt-to-capital ratios. Note that our quote service sometimes includes special annual distributions along with the regular monthly payments. How They Rate also includes several free links. Clicking on the Toronto Stock Exchange (TSX) symbol will now take you directly to the Google Finance page for every company in the How They Rate coverage universe.

Clicking on the US symbol of a company takes you to a chronological listing of every Canadian Edge and CE Weekly article in which that trust has been featured. You can also use that page to access articles on other trusts by typing in the relevant exchange and symbol in the “Search Query” box at the top of the page.

For questions and comments, drop us a line at canadianedge@kci-com.com. Check out the Toronto Stock Exchange Web site for a range of information on dividend paying equities. The Web site www.sedar.com is an online library of documents filed by trusts with the Canadian equivalent of our Securities and Exchange Commission. The Toronto Globe & Mail features the “Globe Investor” section with all the latest news. Dominion Bond Rating Service is the pre-eminent credit rater in Canada. The Bank of Canada has a handy currency converter for Canadian dollars and US dollars into 50 other currencies around the world, and it’s a great source of free information on the Canadian economy.

How They Rate can now be accessed several places on the Home Page. The Income Trust Tax Guide has backup to file distributions as “qualified dividends.”

Roger Conrad
Editor, Canadian Edge