Enerplus Corp (TSX: ERF, NYSE: ERF) has cut its dividend in half to a new monthly rate of CAD0.09 per share. This move was long anticipated by many investors, as the stock had already fallen by better than 50 percent in 2012 prior to the announcement.

It’s been several months since I recommended selling Enerplus from the CE Portfolio’s Aggressive Holdings. Unfortunately, that remains my advice, despite the steep slide in the share price since my initial “sell” recommendation.

The main reason is simply that there are other oil and gas producers with less risk and at least as compelling an upside story. Enerplus’ dividend cut will save cash that the company can use to continue its capital spending plans without further tapping its credit lines.

And hot weather has triggered at least some recovery in natural gas prices this summer, which at least somewhat vindicates management’s decision not to hedge natural gas output earlier this year.

On the other hand, as of Mar. 31, 2012, the company had drawn CAD451 million of its CAD1 billion credit line. The line won’t mature until Oct. 13, 2014, and Enerplus appears to be in full compliance with its terms.

But the sharp drop in oil and natural gas liquids (NGL) prices we’ve seen since early May will take its toll on cash flow, putting more pressure on management to make asset sales.

We’ll know a lot more in early August, when Enerplus announces its second-quarter 2012 results. The most important questions will be how well cash flow covered the distribution and capital costs and how much more the company had to draw on credit lines.

The stock has recovered a bit on takeover speculation, in the wake of Progress Energy Resource Corp’s (TSX: PRQ, OTC: PRQNF) acquisition by Malaysia’s state-owned oil and gas company Petroliam Nasional Berhad, better known as Petronas. And even if energy prices fall further I see no chance of Enerplus following the downward path of, for example, Perpetual Energy Inc (TSX: PMT, OTC: PMGYF).

But there’s definitely the risk of another dividend cut, given the cost of the company’s development plans for its Bakken Shale (light oil) and Marcellus Shale (gas and NGLs) properties. And that’s enough reason to avoid this stock in favor of alternatives. See Portfolio Update for these recommendations. Enerplus remains a sell.

Here’s the rest of the current Watch List.  The only addition is AvenEx Energy Corp (TSX: AVF, OTC: AVNDF), which earns its place due to the drop in oil prices.

That’s mainly because of the lack of significant changes in the numbers. The August issue will reflect the vast majority of second-quarter 2012 earnings releases and guidance calls as well as debt maturing through the end of 2013. Consequently, it’s likely there will be changes there.

Aston Hill Income Fund (TSX: VIP-U, OTC: BVPIF), a closed-end fund, still yields far more than the average yield of its holdings. That means it’s relying on capital gains, leverage and return of capital to keep paying out, not a long-term strategy.

Switch to one of the Canadian Edge Portfolio’s Mutual Fund Alternatives if you haven’t already. Sell.

AvenEx Energy Corp (TSX: AVF, OTC: AVNDF), like all small producers of oil and gas, suffers when energy prices fall.

We’ve already seen one dividend cut this year for this company in the wake of tumbling natural gas prices. The drop in oil since early May ratchets up the risk for another one, and we won’t see earnings until at least mid-August. Hold.

Canfor Pulp Products Inc (TSX: CFX, OTC: CFPUF) continues to suffer from production problems as it upgrades the Northwood Pulp Mill facility. Meanwhile, worries about global growth, particularly demand from Asia, are still softening global pulp markets.

The company’s position as a low-cost competitor is still very much intact, and in fact has been enhanced with Canadian government assistance in recent years. But the history of Canfor has also been that dividend cuts and increases tend to follow each other in rapid succession. And conditions appear eerily reminiscent of past period when the company suffered several cuts in a row.

I still think Canfor will see a higher share price and an increased dividend in coming years. But investors should only hold it if they’re willing to live with the possibility of another cut later this year, before that recovery begins. Hold.

Chorus Aviation Inc (TSX: CHR/B, OTC: CHRVF) appears to be backing out of a venture with the now bankrupt Uruguayan national airline. That potentially puts its CAD15 million investment in the venture at risk. Talks are apparently continuing, but management isn’t investing more money at the moment.

The problems in the South American country are just the latest failure of Chorus’ efforts to diversify revenue beyond its historic alliance with parent Air Canada Inc (TSX: AC/A, OTC: AIDIF). That spells more trouble for the dividend, as the company remains locked in arbitration with Air Canada over its expense and revenue-sharing agreement. A decision is likely to mean less cash flow, even as the company loses its valuable Thomas Cook Canada contract at the end of 2012.

The one positive is the stock price already reflects a massive dividend cut, with a yield of nearly 20 percent, and there’s also no debt coming due until the end of 2014. But with costs rising, market share under pressure and a big hit likely ahead from a new Air Canada deal, there’s still downside. Sell.

Colabor Group Inc (TSX: GCL, OTC: COLFF), which distributes food and related products, did maintain its current quarterly dividend rate last month. That’s a good sign management is sticking with guidance it laid out when it last cut the dividend a few months ago.

But market conditions are still very tough in this business, and there’s CAD120.61 million drawn on a CAD150 million credit line that matures Apr. 28, 2016, which management has pledged to pay down. We’ll know more when second-quarter earnings are announced, which is expected in late July.

And I look for enough improvement in the numbers to take Colabor off the Dividend Watch List then. But there’s still too much uncertainty to do that this month. Hold.

Data Group Inc (TSX: DGI, OTC: DGPIF) is only covered by one Bay Street analyst, and that analyst rates the stock a “sell.” That’s not very encouraging. But management has continued to at least match its guidance as well as maintain the company’s huge dividend since it converted to a corporation from an income trust this year.

The stock more than prices in a large dividend cut, largely because many investors still consider it to be another Yellow Media Inc (TSX: YLO, OTC: YLWPF) in the making. Ironically, if anything the company’s core business of document management is in greater demand than ever, as the Internet has removed the limitations of storing physical paper. That’s the complete opposite of the evaporation of the print pages directory business that claimed Yellow as a victim.

As is always the case, the numbers yet to come will tell the tale. But Data Group is a decent speculation for those who can live with the volatility and the risk that the numbers do really deteriorate. Hold.

Enerplus Corp (TSX: ERF, NYSE: ERF) remains on the Watch List for reasons discussed above.

EnerVest Energy & Oil Sands Total Return Fund’s (TSX: EOS, OTC: EOSOF) holdings pay very little in dividends. That means this closed-end fund’s yield comes from capital gains, return of capital and leverage. The first have been very hard to come by in the energy patch in recent months.

My expectation is we’ll see a big recovery later this year, but individual stocks are a much better way to benefit. Mutual fund investors should switch to one of the Canadian Edge Portfolio’s Mutual Fund Alternatives if you haven’t already. Sell.

Extendicare REIT (TSX: EXE-U, OTC: EXETF), which owns and operates senior care centers in the US and Canada, is drawing more love from Bay Street in recent weeks. That’s almost certainly due to management’s success in absorbing a big hit from lower Medicare reimbursement in the US and the conversion to a corporation on Jul. 1, 2012.

I expect to see solid second-quarter numbers when the company reports on Aug. 9, and I’ll have a full recap in the August issue. That may in fact earn Extendicare an exit from the Dividend Watch List. But until we do see those numbers, this stock remains on the List and is a buy for aggressive investors only. Buy under USD9.

FP Newspapers Inc (TSX: FP, OTC: FPNUF) continues to flounder, as the print advertising business lags even in Manitoba. But management was able to deliver some very good news this month, extending the company’s credit agreement to eliminate near-term maturities, cut interest costs by an estimated CAD600,000 a year and free up CAD5 million in previously sequestered cash.

That raises the odds considerably that management will be able to hold the current dividend rate for the rest of 2012. But the real test for longevity is earnings, with the next set of numbers expected around Aug. 10. Until there’s real improvement there, FP is a long-term sell and definitely will remain on the Watch List. Sell.

GMP Capital Inc’s (TSX: GMP, GMPXF) cash flow depends on market activity on the Toronto Stock Exchange (TSX). Though we’ve seen some improvement on this front recently, it still looks like the company’s revenues and earnings for the second quarter of 2012 are going to fall short and that it will be challenged for the rest of the year as well.

The new dividend rate is conservative, and management will likely be able to hold it this year despite the tough business conditions. But the payout is still endangered and should be treated as such by investors. Hold.

Labrador Iron Ore Royalty Corp (TSX: LIF-U, OTC: LIFZF) has declared the same second-quarter dividend and special distribution it did in the first quarter, a good sign that the current payout level is sustainable going forward.

But weakness in global iron ore and related products prices is worry enough to keep the stock on the Watch List. Another risk is the Canadian government’s tax policy on stapled shares, which combine debt and equity into a single security. And that’s the structure Labrador employs for its publicly traded shares. Hold.

New Flyer Industries Inc (TSX: NFI, OTC: NFYED) has made it official: Management will buy back the remaining debt securities attached to the company’s former income deposit securities on Aug. 20, 2012, and will simultaneously cut the stock’s dividend roughly in half. My worry is that investors still haven’t taken this move into account, even as the bus manufacturing business is mired in a depression.

Once the cut is made New Flyer will come off the Watch List. But until we see fallout from the move, the stock remains one to avoid. Sell.

Precious Metals & Mining Trust (TSX: MMP-U, OTC: PMMTF), a closed-end fund, now trades at a premium of nearly 30 percent to its net asset value. That means every $1 of share price is backed by just 70 cents worth of assets. It will take an increase of almost 50 percent in portfolio value for the fund to be worth its current price.

Why the premium? Investors are buying what they think is a reliable yield, but the dividend is being paid out of return of capital. I’m still bullish on metals stocks. But avoid this fund at all costs. Buy Barrick Gold Corp (TSX: ABX, NYSE: ABX) instead as a bet on an eventual mining stock rebound. Sell.

Ten Peaks Coffee Company Inc (TSX: TPK, OTCL SWSSF) is uniquely ill-suited to paying a high dividend because its fortunes are completely tied to volatile coffee prices. This point has been proven by a more than 80 percent reduction in the payout since the company’s initial public offering in the last decade.

And I expect we’ll see it proven yet again sometime in the next 12 months, unless management’s promised cost-reduction measures are a lot more effective than even they expect. There’s just nothing that unique about the coffee business that can support a large portion of cash flows paid out in dividends every month. Sell.

TransAlta Corp’s (TSX: TA, NYSE: TAC) position as a low-cost power producer in Alberta is a huge long-term advantage. Its ownership of coal-fired plants and sales into the US are a big disadvantage. And a drop in wholesale power prices due to low natural gas prices is a further challenge this year.

We’ll see in late July whether second-quarter numbers continue to support the current quarterly dividend. I rate the stock a hold, primarily on its long-term strengths. But any real deterioration of results means “sell.” Hold.

Zargon Oil & Gas Ltd (TSX: ZAR, OTC: ZARFF), another small oil and gas producer, will always have big trouble when energy prices fall. This company also faces a challenge from rising costs, as it attempts to sell more oil and less natural gas.

Management was able to roll over its credit lines last month on roughly the same terms as the prior ones and has been able to raise some cash with asset sales as well. But management also cut production guidance to 5,200 barrels per day from 5,400, which reduces scale and may increase costs. That’s even as cash flow suffers from lower oil prices in the second quarter.

We’ll know more in mid-August when Zargon releases its numbers, and it’s entirely possible hedges will limit the impact of lower oil prices. It’s also possible that news will worsen enough for another dividend cut. Other producers offer less risk and just as much upside to an oil recovery. Sell.

Bay Street Beat

A dozen Bay Street investment houses that cover CE Portfolio Conservative Holding Shaw Communications Inc (TSX: SJR/B, NYSE: SJR) have provided updated analyses since the company reported fiscal 2012 third-quarter (ended May 31, 2012) earnings.

All 12 analysts maintained their ratings on the stock. Four rate the stock a “buy” according to Bloomberg’s standardized version of investment-house advice terms, six call it a “hold” and two say it’s a “sell.” Overall Shaw has six “buy” ratings, nine “holds” and two “sells.”

Management reported Jun. 28 that net income from continuing operations was CAD248 million (CAD0.53 per share), up 22 percent from CAD203 million (CAD0.45 per share) in the three months ended May 31, 2011.

Consolidated revenue–including triple-play video, voice and Internet cable operations and its Shaw Direct satellite TV division–was flat for the quarter at CAD1.28 billion. Sales for the nine months ended May 31 were up 6 percent to CAD3.79 billion.

Free cash flow declined to CAD203 million from CAD240 million a year ago due in part to increased capital investment. Management said Shaw remains on track to generate free cash flow of CAD450 million for fiscal 2012.

Cable revenue grew by 1.1 percent to CAD794 million, while the media division, created from the broadcasting assets of bankrupt Canwest acquired in 2010, posted a 5 percent decline on this metric.

Growth at the bottom line was driven mainly by cost cuts and a lower tax bill. Shaw lost 21,500 cable customers during the quarter, as its intense competition with Telus Corp (TSX: TU, OTC: NYSE: TU) for customers in Western Canada continues.

Basic cable customers stood at 2.236 million, down by 54,000 in the first nine months of fiscal 2012, cable broadband Internet customers increased by 29,000 to 1.906 million, cable telephony grew by 107,000 to 1.340 million customers and satellite TV customers were flat at 909,000.

Management noted during its conference call to discuss third-quarter results that its focus remains on retaining its base of customers and that it won’t succumb to the pressures of a pricing war with its rival Telus.

Here’s how the Canadian Edge Portfolio stands with Bay Street as far as buy-hold-sell ratings are concerned entering second-quarter earnings reporting season, with the average price target in parentheses.

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–5–1–2 (CAD34.86)
• Artis REIT (TSX: AX-U, OTC: ARESF)–5–4–0 (CAD17.21)
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–1–3–2 (CAD15.01)
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–5–2–0 (CAD16.33)
• Brookfield Renewable Energy Partners LP (TSX: BEP-U, OTC: BRPUF)–5–6–0 (CAD29.30)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–5–6–0 (CAD24.85)
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–2–8–2 (CAD30.30)
• Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–3–4–0 (CAD20.13)
• Dundee REIT (TSX: D-U, OTC: DRETF)–6–2–0 (CAD39.71)
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–4–2–0 (CAD10.80)
• IBI Group Inc (TSX: IBG, OTC: IBIBF)–7–3–1 (CAD15.27)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–3–9–1 (CAD10.79)
• Just Energy Group Inc (TSX: JE, OTC: JUSTF)–2–4–1 (CAD13.25)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–6–2–1 (CAD48.69)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–4–6–2 (CAD33.94)
• Pembina Pipeline Corp (TSX: PPL, NYSE: PBA)–6–5–1 (CAD31.95)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–3–6–0 (CAD28.31)
• Shaw Communications Inc (TSX: SJR/B, NYSE: SJR)–6–9–2 (CAD20.41)
• Student Transportation Inc (TSX: STB, OTC: STUXF)–3–2–1 (CAD7.62)
• TransForce Inc (TSX: TFI, OTC: TFIFF)–9–1–0 (CAD22.11)

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–0–4–0 (CAD11.13)
• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–4–6–0 (CAD40.94)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–11–6–2 (CAD24.13)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–3–2–1 (CAD18.25)
• Colabor Group Inc (TSX: GCL, OTC: COLFF)–0–5–1 (CAD7.29)
• Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF)–17–5–1 (CAD48.09)
• Extendicare REIT (TSX: EXE-U, OTC: EXETF)–2–2–1 (CAD8.42)
• Newalta Corp (TSX: NAL, OTC: NWLTF)–7–3–0 (CAD16.86)
• Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–1–0–0 (CAD8.00)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–4–5–0 (CAD14.58)
• Pengrowth Energy Corp (TSX: PGF, NYSE: PGH)–6–10–2 (CAD9.00)
• PetroBakken Energy Ltd (TSX: PBN, OTC: PBKEF)–16–5–0 (CAD18.40)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–11–3–1 (CAD22.17)
• PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–3–9–1 (CAD10.52)
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–9–4–1 (CAD51.71)

Tips on DRIPs

US securities laws restrict participation in DRIPs sponsored by foreign companies that don’t register their offering with the Securities and Exchange Commission (SEC). Most plans of Canadian companies that do sponsor DRIPs aren’t registered under the United States Securities Act of 1933, as amended. US investors, therefore, aren’t eligible to participate.

But a handful of companies from among the 200-plus under Canadian Edge How They Rate coverage do afford US investors the opportunity to sidestep brokers and exchanges.

Companies under Canadian Edge How They Rate coverage that sponsor DRIPs open to US investors include:

• Bank of Montreal (TSX: BMO, NYSE: BMO)
• Bank of Nova Scotia (TSX: BNS, NYSE: BNS)
• Baytex Energy Corp (TSX: BTE, NYSE: BTE)
• BCE Inc (TSX: BCE, NYSE: BCE)
• Enbridge Inc (TSX: ENB, NYSE: ENB)
• EnCana Corp (TSX: ECA, NYSE: ECA)
• Nexen Corp (TSX: NXY, NYSE: NXY)
• Pengrowth Enegy Corp (TSX: PGF, NYSE: PGH)
• Penn West Petroleum Ltd (TSX: PWT, NYSE: PWE)
• Potash Corp of Saskatchewan (TSX: POT, NYSE: POT)
• Rogers Communications (TSX: RCI/B, NYSE: RCI)
• Royal Bank of Canada (TSX: RY, NYSE: RY)
• Suncor Energy (TSX: SU, NYSE: SU)
• Telus Corp (TSX: T, NYSE: TU)
• Toronto-Dominion Bank (TSX: TD, NYSE: TD)
• TransCanada Corp (TSX: TRP, NYSE: TRP)

Atlantic Power Corp (TSX: ATP, NYSE: AT), which listed on the NYSE in July 2010, continues to “evaluate options for a Dividend Reinvestment Program” and “hopes to have this option available to shareholders in the future.”

Just Energy Group Inc (TSX: JE, NYSE: JE), which listed on the NYSE in January 2012, has a DRIP but as of yet it’s not open to US shareholders.

Pembina Pipeline Corp (TSX: PPL, NYSE: PBA) completed its acquisition of Provident Energy Ltd on Apr. 9, 2012. The latter, who had been listed on the NYSE, has obviously suspended its DRIP.

The former–or the now combined company–is trading on the NYSE under the symbol PBA. But Pembina Pipeline has not yet made any announcement about its intentions with regard to opening its DRIP to US investors.

Shaw Communications (TSX: SJR/B, NYSE: SJR) also hasn’t yet made its DRIP available to US investors.

Why buy dividend reinvestment plans (DRIP) from individual companies, rather than simply have your broker reinvest dividends?

One reason is it puts up an additional barrier to emotional selling on a bad day. Another is you can achieve much broader diversification with a smaller sum of money, as many DRIPs require you to hold only one share to sign up.

We continue to track Atlantic Power, Just Energy, Pembina Pipeline, Shaw Communications and  others that indicate they’re considering opening a plan to US investors or announce that they will sponsor DRIPs open to US investors on a monthly basis in this space.