Coverage Changes

There are no coverage changes in How They Rate this month.

Advice Changes

Aston Hill VIP Income Fund (TSX: VIP-U, OTC: BVPIF)–To Hold from SELL. The closed-end fund has raised investment income to match its payout, no mean feat in a tough environment.

AvenEx Energy Corp (TSX; AVF, OTC: AVNDF)–To SELL from Hold. Second-quarter drops in production and profits raise risks of another dividend cut.

Bellatrix Exploration Ltd (TSX: BXE, OTC: BLLXF)–To Buy @ 4 from Hold. The oil and gas producer plans to list on the New York Stock Exchange (NYSE) on the heels of strong second-quarter output gains and steady profits.

Bonterra Energy Corp (TSX: BNE, OTC: BNEFF)–To Hold from Buy @ 55. Management is maintaining full-year production guidance despite a second-quarter shortfall. But a little caution is called for until we see third-quarter results in early November.

Canadian Natural Resources Ltd (TSX: CNQ, NYSE: CNG)–To Buy @ 30 from Hold. The company’s ability to raise production 22 percent while cutting capital spending was unexpected and a good sign for the rest of the year.

Liquor Stores NA Ltd (TSX: LIQ, OTC: LQSIF)–To Hold from Buy @ 18. A court ruling in Kentucky could undermine the company’s franchise in the state, even as the company’s CEO since 2009 has suddenly resigned.

Nexen Inc (TSX: NXY, NYSE: NXY)–To SELL from Hold. The stock trades nearly 10 percent below CNOOC’s offer of CAD27.50 per share. But it would likely plunge to its pre-deal range in the mid-teens if what seems to be a growing list of opponents to the merger convince regulators to block it.

Pengrowth Energy Corp (TSX: PGF, NYSE: PGH)–To Buy @ 7 from Hold. The company faces skepticism after cutting its dividend following the takeover of the former NAL Energy Corp. But second-quarter results were steady, and the stock trades at a discount to asset value.

Ratings Changes

AvenEx Energy Corp (TSX; AVF, OTC: AVNDF)–To 1 from 2. Poor second-quarter results lead to spike in the payout ratio.

Bonterra Energy Corp (TSX: BNE, OTC: BNEFF)–To 2 from 3. The second-quarter payout ratio spiked to 93 percent.

Safety Ratings

The core of my selection process is the six-point CE Safety Rating System, which awards one point for each of the following. A rating of “6” is the safest:

• Payout Ratio–A ratio below our proprietary industry baseline.
• Earnings Visibility–Earnings are predictable enough to forecast a payout ratio below our proprietary industry baseline.
• Debt-to-Assets Ratio–A ratio below our proprietary industry baseline.
• Short-Term Debt Ratio–Debt due in next two years is less than 10 percent of market capitalization.
• Business Stability–Companies that can sustain revenues during recessions are favored over more cyclical ones.
• Dividend History–No dividend cuts over the preceding five years.

Here’s an in-depth explanation of the proprietary CE Safety Ratings System.