TransAlta Corp

Sound bite for Twitter and StockTwits is: Dividend Paying Utility. This stock is cheap for a reason and for a utility the risk is probably unusually high. However, management does seem to be sorting out the company's problems. See my spreadsheet on TransAlta Corp.

I own this stock of TransAlta Corp (TSX-TA, NSYE-TAC). I bought this stock in 1987. It was a utility stock and utility stocks were considered to be good investments. I sold some in 2000 as the stock price was below what I had paid for it. I bought some more in February 2009 because it was relatively cheap and it seemed to be recovering. I sold more in August 2012 as this company was doing poorly again.

The spreadsheet is full of red. This company has not done well recently. Also it must shut down its coal-fired power producers but they have worked out a deal with Alberta to help in this transition. A good thing is that in 2017 they reduced their debt by 20%.

The dividends have been declining since 2014. They cannot currently cover their dividends, especially since they had an earnings loss in 2017 and are expected to have an earnings loss again in 2018. Analysts expect that the dividend will not be covered by earnings until 2019.

The dividends are covered by Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO). According to the company their FFO for 2017 is $2.97 and dividend coverage is 5.73% with 5 year coverage at 23.37%. More people now look at AFFO rather than FFO. The AFFO for 2017 is $0.97 and the coverage is 16.49% with 5 year coverage at 78.06%.

Long Term Total Returns are not great. I have total returns going back 30 years and until you hit 15 years, the total returns are negative. This is because the stock price has been fall from its high of just over $33.00 in 2007. This current price is $7.18 with a price of $7.45 at the end of 2017.

The total return loss for years 5, 10 years is at 7.96% and 9.07% per year. The total return for years 15, 20, 25 and 30 are 2.33%, 1.27%, 6.33% and 6.22% per year. You have these positive returns because of dividends. This is a reason to buy dividend stocks.

The portion of the Total Return attributable to capital loss for the years 5, 15, 15, 20, 25 and 30 years are 13.20%, 13.92%, 5.39%, 5.39%, 2.42% and 2.17% per year. The portion of the total return attributed to dividends for these years are 5.24%, 4.85%, 7.73%, 6.65%, 8.75% and 8.38% per year.

The 5 year low, median and high median Price/Earnings per Share Ratios are -10.53, -11.56 and -12.39. They are negative because of recent earnings losses. The 10 year ratios are better at 12.01, 15.04 and 18.07. The historical ratios are 14.88, 16.29 and 21.19. The current P/E Ratio is negative 143.60 based on a stock price of $7.18 and 2018 EPS estimate of an earnings loss of $0.05. The P/E Ratio for 2019 is $39.89 based on a stock price of $7.18 and EPS estimate for 2018 of $0.18. This is all nonsense and no bases to do any stock price testing.

Since this is a utility stock, I have Adjusted Funds from Operations information going back some 7 years. The Price/AFFO Ratio for 5 years are 7.16, 10.28 and 15.40. The 7 year values are 7.16, 10.28 and 13.83. The current P/AFFO Ratio is 6.03 based on 2018 AFFO estimate of $1.19 and a stock price $7.18. This stock price testing suggests the stock price is relatively cheap.

I get a Graham Price of $5.79. The 10 year low, median and high median P/GP Ratios are 1.13, 1.30 and 1.47. The current P/GP Ratio is 1.24 based on a stock price of $7.18. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a 10 year Price/Book Value per Share Ratio of 1.66. The current P/B Ratio is 0.87 based on a Book Value of $2,384M, Book Value per Share of $8.28 and a stock price of $7.18. The current P/B Ratio is some 48% lower than the 10 year ratio. This stock price testing suggests that the stock price is relatively cheap.

Also the current P/B Ratio is below 1.00. That means that the potential breakup value of the company is higher than the market cap of this company or the stock price. This by itself suggests that the stock price is cheap.

Using a dividend yield test does not work well on stocks where the dividends have been decreasing. The historical dividend yield is 5.72% and the current dividend yield is 2.23%. The current dividend yield is based on dividends of $0.16 and a stock price of $7.18. The current dividend yield is some 51% below the historical one. The current dividend yield is also below the 5 and 10 year median dividend yields of 6.71% and 5.39%. Any testing with dividend yield is going to show a stock price that is relatively expensive.

I get a 10 year median Price/Sales (Revenue) Ratio of 1.70. The current P/S Ratio is 0.89 based on 2018 Revenue estimate of $2,265M, Revenue per Share of $7.87 and a stock price of $7.18. The current P/S Ratio is some 46% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.

When I look at analysts' recommendations I find Buy, (2), Hold (6) and Underperform (1). The consensus would be a Hold. The 12 month stock price is $8.22. This implies a total return of 16.71% with 14.48% from capital gains and $2.23% from dividends.

Thomas Auclair on Simply Wall Street says not to buy this stock for its dividend, but it may be an interesting play otherwise. Andrew Walker on Motley Fool talks about this stock as a unloved stock for contrarians. The company provided fourth quarter information for Cision. They seem to be turning the company around. See what analysts are saying about this stock on Stockchase. The most recent entry is November 2017 and most say positive things about the company.

TransAlta Corp is engaged in the production and sale of electric energy in Alberta, Canada. It also has an energy trading and marketing business as well as it owns transmission lines and coal mines. Its web site is here TransAlta Corp.

The last stock I wrote about was about was Enbridge Inc. (TSX-ENB, NYSE-ENB)... learn more. The next stock I will write about will be TransCanada Corp (TSX-TRP, NYSE-TRP)... learn more on Wednesday, March 21, 2018 around 5 pm. Tomorrow on my other blog I will write about Reviewing Stocks... learn more on Tuesday, March 20, 2018 around 5 pm.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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