Data Group Inc (TSX: DGI, OTC: DGPIF) was the only Canadian Edge How They Rate company to announce a dividend reduction last month.

The 53.9 percent cut is effective Jan. 1, 2013, and results in a new annualized rate of CAD0.30, down from CAD0.6504. It also includes a switch to quarterly from monthly payments.

As a legacy paper business attempting to convert customers to web-based products and services, Data Group has an unfortunate similarity to Yellow Media Inc (TSX: YLO, YLWPF). Yellow is in the process of recapitalizing, converting debt to stock in order to remain solvent but largely wiping out existing shareholders in the process. And its legacy paper business is still eroding faster than the web directory operation is growing. The recap ensures the company will survive in the near term.

The long term outlook is far less certain, and Yellow Media still rates a sell.

Up until now document manager Data Group had seemed to be succeeding where Yellow had failed.

And there were, once again, promising signs in third-quarter numbers. Gains in “new business” revenue–which is mainly the digital effort–ran ahead of last year’s pace, indicating some success in converting customers. The company also reported CAD1.2 million in additional cost efficiencies throughout its operation, overall revenue rose 2.8 percent and net income was positive.

Also unlike Yellow, Data Group hasn’t borrowed extensively to build a digital business with acquisitions. Interest expense rose 7.1 percent from last year, as credit balances rose slightly. The next significant maturity, however, isn’t until June 2017, when a CAD45 million convertible issue comes due.

That’s a stark contrast to Yellow’s wall of debt that will remain formidable after the recap, particularly for a company with shrinking revenue.

Data Group’s fundamental question of whether digital growth will eventually offset legacy erosion is still unanswered. Based on third-quarter numbers the lower dividend rate appears sustainable, and management should be able to use saved cash to reduce debt as well.

In addition, the stock has plunged another 30 percent since the announcement and is therefore pricing in another dividend cut.

The upshot is Data Group looks on the surface like a decent speculation, particularly in a momentum-driven market where fear routinely turns orderly retreats into routs. Unfortunately, there are plenty of examples where bad turns to worse, as happened to Yellow Media.

Steer clear of Data Group until there’s a better indication of whether this is really a bottom.

Here’s the rest of the Dividend Watch List, which is based on third-quarter numbers and outlooks that are essentially in for How They Rate fare. Not all Watch List members are sells, though conservative investors should avoid all of them.

Note that a number of Electric Power companies in How They Rate posted third-quarter payout ratios well in excess of 100 percent and yet don’t appear on this list. That’s for two reasons.

First, the high ratios are in a period that’s seasonally weak for demand, particularly in Canada. And this time around the usual quarterly shortfall in distributable cash flow was exaggerated by water flows that were much weaker than in 2011. Full-year projections are generally much more favorable.

Brookfield Renewable Energy Partners LP (TSX: BEP-U, OTC: BRPFF), for example, has a third-quarter payout ratio of 875 percent. Nine-month distributable cash flow, however, actually covered the payout by roughly a 1-to-1 margin.

As anyone who has looked at these companies long enough well knows, one season’s light are the next one’s heavier water flows. Moreover, power generation companies’ cash flow is tied to long-term contracts, making them extraordinarily predictable.

When it comes to new construction, capital costs are expensed up front, which maximizes net cash flow to the company when building is completed. And projects aren’t started unless there’s guaranteed contract revenue at the other end.

The result is power companies also have unmatched ability to forecast revenue well into the future. And this, in turn, allows them to carry high payout ratios in the near term that would be ruinous to companies in other sectors.

We have seen dividend cuts in this sector in the past. At this point, however, none of the current lineup appears to be at risk, despite high third-quarter payout ratios that I’d like to see come down sooner rather than later.

AvenEx Energy Corp’s (TSX: AVF, OTC: AVNDF) oil and gas business continued its decline, with output falling 23 percent. Third-quarter funds from operations (FFO) per share tumbled 22 percent.

The payout ratio, however, remained modest at 58 percent, thanks to improved results at the marketing division, which saw a boost in crude oil-by-rail operations.

Less sure is whether that’s sustainable, as the company continues its strategic review and the 12 percent yield is extremely suspect. Sell.

Bonavista Energy Corp (TSX: BNP, OTC: BNPUF), a leading natural gas liquids producer, has affirmed the current dividend level as safe in 2013. However, that’s based on a forecast that doesn’t include additional weakness in energy prices.

The stock is for the aggressive only. Buy under USD18.

Chorus Aviation Inc’s (TSX: CHR/B, OTC: CHRVF) third-quarter numbers were, once again, solid. But results were based on economics that depend on the outcome of arbitration with Air Canada Inc (TSX: AC/A, OTC: AIDIF).

Optimism has grown that a deal will be amicable, and the stock has seen a couple of brokerage upgrades. But some dividend cut still appears likely. Sell.

CML Healthcare Inc’s (TSX: CLC, OTC: CMHIF) cash flow dropped 21 percent in the third quarter, and the payout ratio soared to 138 percent. The primary reason is greater-than-expected impact of recent reimbursement rate cuts in Ontario.

During the company’s third-quarter conference call CEO Thomas Wellner recognized that “our payout ratio this quarter is not at a prudent level” and that “we will be reviewing our dividend policy.” That may or may not include a cut with the company’s release of its 2013 business plan.

With a yield of 11 percent plus, one is priced in already. But until there’s a resolution, this stock is not for conservative investors. Hold.

Data Group Inc (TSX: DGI, OTC: DGPIF) is discussed in detail at the top of the Watch List above. Sell.

Enerplus Corp’s (TSX: ERF, NYSE: ERF) third-quarter results were disappointing to investors who had bid the stock up on speculation about natural gas prices. But production met previously announced guidance, and debt growth slowed.

Management’s pledge to maintain the current dividend will depend on uncertain oil and gas prices. Hold.

EnerVest Energy & Oil Sands Total Return Trust (TSX: EOS, OTC: EOSOF) doesn’t pay its dividend from investment income. Sell.

Extendicare Inc’s (TSX: EXE, OTC: EXETF) third-quarter results were solid and showed marked improvement from the second quarter, demonstrating the company has dealt with previous US Medicare reimbursement cuts.

Less certain is what’s in store for Medicare as Washington debates budget cuts. Hold.

FP Newspapers Inc’s (TSX: FP, OTC: FPNUF) third-quarter distributable cash flow again failed to cover the payout, and advertising sales continued to drop. Bright spots were flat circulation and some success cutting costs.

The biggest support for holding the dividend is heavy insider ownership (30.5 percent of the stock). But the numbers still point to an eventual cut. Sell.

Freehold Royalties Ltd’s (TSX: FRU, OTC: FRHLF) third-quarter payout ratio fell sharply to 76 percent, as production on the company’s royalty lands rose 20 percent. Holding the dividend in 2013 will depend on energy prices, and there’s little margin for error.

The key positive is there’s plenty in the ground, and very low costs ensure an eventual rebound should energy prices drop early next year. Hold.

GMP Capital Inc (TSX: GMP, GMPXF) continues to hold its market share, and third-quarter revenue rose 25 percent as capital markets activity rebounded. That swung this niche investment company into the black.

But the payout ratio still has to come down a lot for the current dividend to be considered safe. Hold.

IBI Group Inc (TSX: IBG, OTC: IBIBF), a global provider of architectural and design services, covered its dividend with distributable cash flow in the third quarter. Management also assured investors there are no plans for a reduction, and is heavily invested in the stock as well.

Cost efficiency measures, however, will have to show a lot more progress than they did in the third quarter, particularly as the company tackles debt maturities of CAD46 million in December 2014 and another CAD67.58 million in drawn credit lines in July 2016. Hold.

Labrador Iron Ore Royalty Corp (TSX: LIF, OTC: LIFZF), which has converted to a corporation, is expected to pay the same CAD0.25 per share dividend in January, despite abandoning its split-share structure.

The payout will ultimately be driven by iron ore prices, which depend on uncertain global demand for steel in 2013. Hold.

New Flyer Industries Inc (TSX: NFI, OTC: NFYED) is now officially paying out a monthly dividend of CAD0.04875 per share. That’s a level management stated during its third-quarter conference call that it can hold.

Unfortunately, backlog and deliveries for this bus manufacturer dropped from year-earlier levels, reflecting weakness in the market for buses in North America.

Until these conditions turn and the payout ratio goes under 100 percent, New Flyer’s dividend will be at risk. Sell.

Poseidon Concepts Corp’s (TSX: PSN, OTC: POOSF) third-quarter earnings weren’t so far from management projections that the stock deserved this kind of selloff. And both the numbers and management’s statements support the current dividend, which now represents a yield of more than 30 percent.

But the horse is out of the barn. The magnitude of this decline suggests extreme momentum I’m not inclined to sell into. But I don’t advise anyone add to positions until we see definitively that there’s not a raging fire behind what to date has been only smoke. Hold.

Precious Metals & Mining Trust’s (TSX: MMP-U, OTC: PMMTF) top holdings don’t pay dividends, meaning the yield is manufactured. And the fund’s 10 percent premium to net asset value means you’re paying $1 to own 90 cents of assets.

Buy individual mining stocks instead. Sell.

Ten Peaks Coffee Company Inc’s (TSX: TPK, OTC: SWSSF) third-quarter cash flow fell 59 percent from year-earlier levels as the company continued to suffer from a strong Canadian dollar and volatile coffee prices.

The bad news is those trends show little sign of abating, and the payout ratio again came in at an unsustainable level, 116 percent. Sell.

Zargon Oil & Gas Ltd’s (TSX: ZAR, OTC: ZARFF) third-quarter numbers, on their face, support the current dividend rate of CAD0.06 per share per month. In fact management projects cash flow will fully cover the payout and capital spending in 2013.

But the 15 percent decline in production from year-earlier levels is worrisome. Hold.