Wednesday, April 11, 2012

TransAlta Corp

I own this stock (TSX-TA). I bought this stock in 1987; I sold some in 2000 and then bought some more in 2009. I have made a total return of 7.45 per year. The portion of dividends is 7.11% and capital gain portion was just 0.34%. The dividend yield was much higher on this stock prior to 1997.

Total return over the past 5 years is 0%. The dividend paid per year was 4.6% per year. (You would have had a Capital loss.) The total return over the past 10 years is 4.6%. Dividends were 4.9% per year and the capital loss was 0.3%. The company has had some recent problems and the stock price has been tracking down.

The 5 year median Dividend Payout Ratios are 91.5% for earnings and 31.5% for cash flow. The cash flow one is fine, but the one for earnings is high. The DPR for earnings was fine for 2011 at 88.5%. It is expected to be over 100% in 2013 and is not expected to improve until 2014. You would not expect any dividend increases in the short term.

This stock has never been a dividend growth stock. Generally the dividend yield has been high and the increases few and far between. The growth in dividends has been at 3% and 1.5% over the past 5 and 10 years. Total inflation has been running at 2% and 2.2% over the past 5 and 10 years. For this stock you expect a rather high yield and a low growth dividend. Although, dividend increases should be keeping up with inflation.

As far as growth goes, there has not been much or just none at all for revenue, earnings, cash flow and book value. It looks like there is growth in earnings over the past 5 years, but that is because earnings hit a low point 5 years ago. Growth in earnings over the past 5 years is really probably around 2%.

The current Liquidity Ratios is a bit low at 0.94, but this is typical for this sort of company. The current Debt Ratio is good at 1.59. The current Leverage and Debt/Equity Ratios are fine for this sort of company at 3.61 and 2.27, respectively.

The Return on Equity looks good at 12.7% for the year ending in 2011. However, the ROE on comprehensive income is really low at 1.3%. The current thinking is that if there is a big difference like this in ROE on net income and comprehensive income, then the ROE on net income may not be as good as it looks.

This is an electrical utility company and what you would expect from it is an 8% return with around 5% from dividends and 3% from capital gains. You would expect dividend growth to be at or a bit better than the rate of inflation. This company used to be like this and if it can get over the current problems it might be again. Why you might invest in it is because it could give you solid returns and with low volatility.

I am holding on to my shares at the present time as I feel that it will get over its current problems.

The globe and mail has a couple of articles on this stock. The first article talks about TA’s recent problems. See article at G&M. The second article is a long interview with the new CEO, Dawn Farrell. See article at G&M

TransAlta is a power generation and wholesale marketing company. TransAlta maintains a low-to-moderate risk profile by operating a highly contracted portfolio of assets in Canada, the United States and Australia. TransAlta's focus is to efficiently operate our biomass, geothermal, wind, hydro, natural gas and coal facilities in order to provide our customers with a reliable, low-cost source of power. Its web site is here TransAlta. See my spreadsheet at ta.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

1 comment:

  1. Wow! You had been holding this stock since 1987!! So impressive.

    Fantastic return too! Must be good to have TransAlt in a portfolio.