Sound bite for Twitter and StockTwits is: Dividend Paying Utility. The stock price is probably reasonable. It even maybe cheap. There is currently a lot of insider buying. Shareholders have not done well in this stock for a number of years. Personally, I am not going to buy shares in the company again. See my spreadsheet on TransAlta Corp.
I do not own this stock of TransAlta Corp (TSX-TA, NSYE-TAC), but I used to. 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. By September 2019, I had finally had enough and saw no hope in this stock doing better. I noticed that MPL Communications had given up hope in stock in 2014 and took it off their Investment Report List.
When I was updating my spreadsheet, I noticed insiders are buying. The Net Insiders Buying (NIB) is 0.25% of outstanding stock and this is a lot. Generally, this is around 0.01%. Buying was by the CEO, CFO, and Chairman. Analysts expect that dividends will begin to rise again with the next 2 years. However, shareholders are not making much in total return with total return for past 5 years at 0.53% per year including a capital loss of 2.48% and dividends at 3.01%.
Analysts seem to feel that this stock will recover. I will do nothing. I have heard such stories before. I replaced this stock with Canadian Utilities. I doubt if I would go back. However, insider have gone from net sellers (2016 to 2018) to net buyers (2019).
The dividend yields are moderate with dividend growth negative. The current dividend yields are moderate (2% to 4% ranges), they have sometimes in the past been good (5% and 6% ranges), but recently they have been low (below 2%). The current dividend yield is moderate at 3%. The 5 year dividend yield is also moderate at 2.41%. The 10 year and historical dividend yields are good at 5.38% and 5.59%. Last year the dividend yield ranged from 1.60% to 2.86%.
Dividends peaked in 2018 and have been traveling south ever since. However, even before 2018 dividends, dividends were also flat a lot of the time. I remember at a Money Show a few years ago that one speaker talked about this company destroying shareholder value for the past 20 years.
The Dividend Payout Ratios are fine, but it would be nice if they earned money consistently to cover dividends. The DPR for EPS for 2019 is 89%. I cannot calculate the 5 year coverage because of lots of years of earnings losses in the past. The DPR for CFPS for 2019 is 6% with 5 year coverage at 12%. This is a low value and therefore a good one. The DPR for Free Cash Flow according the Morningstar values is 10% with 5 year coverage at 22%. Dividend Coverage Ratio for 2019 is 9.58 with 5 year ratio at 4.50. Different sites and the company give different values for FCF.
Debt Ratios are fine especially with recent improvements. The Long Term Debt/Market Cap for 2019 is 1.05 which is too high, but it was higher in the past and is higher now. However, this is stock is down in the current bear market, so the current ratio may not properly reflect the exact position of the company. The Liquidity Ratio is low at 1.20. The Liquidity Ratio has often been low. If you added in cash flow after the dividends the ratio is good at 1.92. The Debt Ratio is good at 1.75. Leverage and Debt/Equity Ratios are fine at 2.34 and 1.34 respectively.
The Total Return per year is shown below for years of 5 to 32 to the end of 2019. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2014 | 5 | -28.05% | 0.53% | -2.48% | 3.01% |
| 2009 | 10 | -17.97% | -4.70% | -8.87% | 4.16% |
| 2004 | 15 | -11.50% | 1.80% | -4.34% | 6.14% |
| 1999 | 20 | -8.76% | 5.56% | -2.09% | 7.64% |
| 1994 | 25 | -6.99% | 5.86% | -1.77% | 7.63% |
| 1989 | 30 | -5.86% | 6.31% | -1.42% | 7.73% |
| 1987 | 32 | -5.32% | 6.32% | -1.36% | 7.67% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are negative. The corresponding 10 year ratios are 1.87, 3.49 and 4.78. The corresponding historical ratios are 14.90, 16.29 and 21.29. The historical ones are the only ones that make any sense. However, I cannot do a P/E Ratio test as the current P/E Ratio is negative as analysts expect an earnings loss this year.
I get a Graham Price of $5.38. The 10 year low, median, and high median Price/Graham Price Ratios are 1.01, 1.18 and 1.32. The current P/GP Ratio is 1.05 based on a current stock price of $5.67. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median Price/Book Value per Share Ratio of 1.30. The current P/B Ratio is 0.79 based on a stock price of $5.67, Book Value of $1,985 and Book Value per Share of $7.16. The current ratio is 39% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get an historical median dividend yield of 5.59%. The current dividend yield is 3.00% based on dividends of $0.17 and a stock price of $5.67. The current yield is 46% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median dividend yield of 5.38%. The current dividend yield is 3.00% based on dividends of $0.17 and a stock price of $5.67. The current yield is 44% below the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
The 10 year median Price/Sales (Revenue) Ratio is 1.16. The current P/S Ratio is 0.72 based on 2020 Revenue estimate of $2,194M, Revenue per Share of $7.92 and a stock price of $5.67. The current ratio is 39% below the 10 year ratio. This stock price testing suggests that the stock price is relatively cheap.
Results of stock price testing is that the stock price is? The tests are showing rather a mixed result. This is because the company has had problems in the past. We cannot ignore the P/S Ratio testing because it is revenue that drives all other values in the end. However, a company still needs to make money. The lack of growth in the dividend points to the fact that it has not be able to make money. The price is probably reasonable and below the median and is shown by the Graham Price test.
Is it a good company at a reasonable price? I gave up and this company and I will not be purchasing it again. The price is probably reasonable.
When I look at analysts’ recommendations, I find Strong Buy (1), Buy (6) and Hold (3). The consensus would be a Buy. The 12 months stock price consensus is $11.65. This implies a total return of $108.47% with 105.47% from capital gains and 3.00% from dividends. Please remember, no one knows when this bear market will be over.
See what analysts are saying on Stock Chase. A couple mention that Brookfield has been brought into this company. Aditya Raghunath on Motley Fool says it is well on track to repeat its glory days. A writer on Simply Wall Street talks about recent insider buying. A writer on Simply Wall Street says the company’s total return has gone up with revenue. The Canadian Press on CTV News talk about the company’s fourth quarter.
TransAlta is an independent power producer based in Alberta, Canada. The company owns more than 70 power plants in Canada, the Western United States, and Australia. 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 TC Energy Corp (TSX-TRP, NYSE-TRP) ... learn more on Friday, March 20, 2020 around 5 pm. Tomorrow on my other blog I will write about 230 Years of Interest Rates by Taylor and Kangas.... learn more on Thursday, March 19, 2020 around 5 pm.
Also, on my book blog I have put a review of the book Elmer’s Investment Approach by Ryan Goldsman learn more...
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.
See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.
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