I do not 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. 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 this stock in 2014.
When I was updating my spreadsheet, I noticed 2020 is the first year since 2010 when dividends have not been flat or declining. Dividend increase was for 6.25%. They increased the dividends again in 2021 by 5.88%. This is good news for shareholders.
I noticed that I held this stock from 1987 to 2019, some 32 years. I earned a total return of 6.12% per year with a capital loss of 2.98% per year and dividends of 9.10% per year. I just gave up on this stock in 2019 and would never buy it again. If I had held it to this year, February 2021, I would have made a capital gain of 1.24% per year. This story shows the benefit of investing in dividend paying stock, as you often make something. However, I probably held it too long, but in the beginning, it was making 7 or 8% per year and I like stocks that at least make 8% per year total return.
The dividend yields are low with dividend growth perhaps restarting. The current dividend yield is low (below 2%) at 1.61%. This stock used to have a higher yield. The 5 year median dividend yield is moderate (2% to 4% ranges) at 2.10%. The 10 and historical median dividend yields are good (5% and 6% ranges) at 5.37% and 5.51%. In 2020 they did a dividend increase and the first since 2009. The dividend increase was low (below 8%) at 6.25%. They did another dividend increase in 2021 and it was also low at 5.88%. I have data for 33 years and in that time, there has been 8 dividend increases and 4 decreases. In the remaining years, dividends were flat.
The Dividend Payout Ratios (DPR) are good and low expect for EPS. I cannot calculate the DPR for EPS for 2020 or for the last 5 years as they have paid out more in dividends than they earned in EPS. There have been a number of EPS losses over the last 5 and 10 years. They have had 6 years of EPS losses in the past 10 years. The DPR for CFPS for 2020 is 7.4% with 5 year coverage at 7.8%. I have data on Funds from Operations and the DPR for FFO for 2020 is 6.8% with 5 year coverage at 6.9%. The DPR for Adjusted Funds from Operations (AFFO) for 2020 is 12.9% with 5 year coverage at 14%. The DPR for Free Cash Flow for 2020 is 23.3% with 5 year coverage at 14.5%.
Debt Ratios are mixed and the stock market does not value the stock above the long term debt. The Long Term Debt/Market Cap Ratio for 2020 is far too high at 1.35. It means this debt is higher than the company’s market cap when it is over 1.00. The current ratio is lower at 1.17, but still too high. The Assets/Current Liability Ratio is good at 10.42. This means that assets cover current liabilities by over 10 times. The Liquidity Ratio for 2020 is 2.03. The Debt Ratio for 2020 is 1.54. The Leverage and Debt/Equity Ratios for 2020 2.84 and 1.84 respectively.
The Total Return per year is shown below for years of 5 to 33 to the end of 2020. 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. |
|---|---|---|---|---|---|
| 2015 | 5 | -25.30% | 17.68% | 14.52% | 3.17% |
| 2010 | 10 | -17.59% | -3.79% | -7.53% | 3.74% |
| 2005 | 15 | -11.23% | -1.79% | -6.24% | 4.45% |
| 2000 | 20 | -8.55% | 1.37% | -4.03% | 5.40% |
| 1995 | 25 | -6.82% | 5.70% | -1.64% | 7.34% |
| 1990 | 30 | -5.72% | 7.90% | -0.68% | 8.59% |
| 1987 | 33 | -5.03% | 6.31% | -1.19% | 7.51% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are negative. The corresponding 10 year ratios are also negative. The corresponding historical ratios are 14.90, 15.26 and 21.19. The current P/E Ratio is negative as is the P/E Ratio for 2022. The P/E Ratio for 2023 is 48.65 based on a stock price of $11.19 and 2023 EPS estimate of $0.23. There really is much we can test on here. The P/E Ratio for 2023 is very high and this is because the EPS is quite low.
There is Adjusted Fund from Operations data for this stock. The 5 year low, median, and high median Price/AFFO Ratio per share are 3.63, 5.43 and 7.25. The corresponding 9 year ratios are 4.70, 7.15 and 8.60. The current P/AFFO Ratio is 8.61. This is just above the 9 year high median ratio of 8.60. This stock price testing suggests that the stock price is relatively expensive.
I get a Graham Price of $4.51, but this is just a guess as there are lots of years of EPS losses. The 10 year low, median, and high median Price/Graham Price Ratios are 1.01, 1.18 and 1.37. The current P/GP Ratio is 2.48 based on a stock price of $11.19. The current ratio of 2.48 is above the 10 year high median ratio of 1.37. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Book Value per Share Ratio of 1.30. The current P/B Ratio is 2.22 based on a Book Value of $1,357, Book Value per Share of $5.03 and a stock price of 11.19. The current ratio is 71% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Cash Flow per Share Ratio of 3.89. The current P/CF Ratio is 4.46 based on Cash Flow per Share estimate for 2021 of $2.51, Cash Flow of $677M and a stock price of $11.19. The current ratio is 15% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get an historical median dividend yield of 5.51%. The current dividend yield is 1.61% based on dividends of $0.18 and a stock price of $11.19. The current dividend yield is 71% 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 5.37%. The current dividend yield is 1.61% based on dividends of $0.18 and a stock price of $11.19. The current dividend yield is 70% 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 1.05. The current P/S Ratio is 1.48 based on Revenue estimate for 2021 of $2,034M, Revenue per Share of $7.54 and a stock price of $11.19. The current ratio is 41% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
Results of stock price testing is that the stock price is probably expensive. The actual price is not that high for this stock if you look at price before 2011. However, it has had a good run lately. It went up 66% in 2019 and another 16% so far this year. Another problem is that future estimates are rather low. Analysts do not expect great things from this company in the near future. If you buy this stock, you even do not get a really good dividend yield until it fully recovers.
Is it a good company at a reasonable price? I do not regret selling this stock. If I had retained it, I would at least now have a capital gain, but of just 1.24% per year. I would have a total return of some 10% per year because of dividends, but dividends in the past. Dividend yield is a lot lower since I sold my shares and a lot lower than most of the years I held this stock.
When I look at analysts’ recommendations, I find Strong Buy (4), Buy (5), Hold (2) and Underperform (1). The consensus would be a Buy. The 12 month stock price consensus is $12.96. This implies a total return of 17.43% with 15.82% from capital gains and 1.61% from dividends.
Analysts on Stock Chase seem to like this stock and think it is a buy. Andrew Walker on Motley Fool thinks this stock is currently a good deal. People who bought at the low in 2016 have done very well. The executive summary on Simply Wall Street gives this company 3 stars out of 5 and list one risk item. A writer on Simply Wall Street talks about insider buying. A writer on Simply Wall Street is worried about the level of debt in this company. The company announces retirement of their CEO Dawn Farrell.
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. TransAlta's net generating capacity is approximately 50% coal-fired and 20% natural gas-fired. The remaining 30% consists primarily of hydroelectric plants and wind energy farms. 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 26, 2021 around 5 pm. Tomorrow on my other blog I will write about Canadian Utilities.... learn more on Thursday, March 25, 2021 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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