Sound bite for Twitter and StockTwits is: Dividend Growth Utility. Debt Ratios need to be improved. The Dividend Payout Ratios (DPR) are good when considering the DPR for FFO and AFFO. The dividend yields are moderate with dividend growth restarting. See my spreadsheet on TransAlta Corp.
Is it a good company at a reasonable price? I am not currently interested in buying this stock. It has lots of debt and a weak balance sheet. The price probably is reasonable. Although some people thinks that it is turning things around.
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 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. 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 2014.
When I was updating my spreadsheet, I noticed analysts expected revenues to go down 18% to $2,721M instead they went up 9% to $2,976M. However, analysts thought that the company would have EPS of $0.36 and increase of 117% (from earnings loss of $2.13), but the EPS came in at $0.01(increasing 100%). The company had a good year in 2022, but analysts expect Revenue, EPS, Cash Flow and Net Income to deteriorate in 2024 and 2025.
If you had invested in this company in December 2012, for $1,013.04 you would have bought 67 shares at $15.12 per share. In December 2022, after 10 years you would have received $271.35 in dividends. The stock would be worth $811.37. Your total return would have been $1,082.72.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $15.12 | $1,013.04 | 67 | 10 | $271.35 | $811.37 | $1,082.72 |
But, if you had invested in this company in December 2017, for $1,005.75 you would have bought 135 shares at $7.45 per share. In December 2022, after 5 years you would have received $116.78 in dividends. The stock would be worth $1,634.85. Your total return would have been $1,751.63.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $7.45 | $1,005.75 | 135 | 5 | $116.78 | $1,634.85 | $1,751.63 |
You can see from the following chart, that this company is doing much better over the past 5 years than the past 10 years.
| Year | Item | Tot. Growth | Per Year |
|---|---|---|---|
| 5 | Revenue Growth | 29.00% | 5.22% |
| 5 | FFO Growth | 78.14% | 12.24% |
| 5 | Net Income Growth | 102.11% | 15.11% |
| 5 | Cash Flow Growth | 40.10% | 6.98% |
| 5 | Dividend Growth | 25.00% | 4.56% |
| 5 | Stock Price Growth | 62.55% | 10.20% |
| 10 | Revenue Growth | 31.56% | 2.78% |
| 10 | FFO Growth | 48.36% | 4.02% |
| 10 | Net Income Growth | 100.65% | 7.21% |
| 10 | Cash Flow Growth | 68.65% | 5.37% |
| 10 | Dividend Growth | -487.50% | -16.23% |
| 10 | Stock Price Growth | -24.86% | -2.20% |
The dividend yields are moderate with dividend growth restarting. The current dividend yield is moderate (2% to 4% ranges) at 2.06%. The 5 and 10 year median dividend yields are also moderate at 2.00% and 2.25%. The historical median dividend yield is good (5% to 6% ranges) at 5.39%. The dividend increases are low and being increased at the rate of 4.6% per year over the past 5 years. This number is low because of a decrease and flat dividends over part of this 5 year period. The last dividend increase was in 2023 and it was for 10%.
The historical median dividend yield is higher is because dividend yields were higher before the company started to cut dividends in 2014. The company’s track record for dividends is not great with 10 dividend increases and 4 dividend decreases over the past 35 years. This implies that most of the time, dividends were flat. The company decreased dividends from 2014 to 2017 inclusive and began to raise them again in 2021
The Dividend Payout Ratios (DPR) are good when considering the DPR for FFO and AFFO. The DPR for EPS for 2022 is 2000% (because EPS is just $0.01). I cannot calculate the 5 year coverage because EPS was negative for most of those years. The DPR for Funds from Operations (FFO) is 4% with 5 year coverage at 5%. The DPR for Adjusted Funds from Operations (AFFO) is 6% with 5 year coverage at 8%. The DPR for Cash Flow per Share is 5% with 5 year coverage at 6%. For Free Cash Flow (FCF) sites mostly agree and because of a negative FCF for 2022, I cannot calculate the ratio. The 5 year coverage is 14%.
Debt Ratios need to be improved. The Long Term Debt/Market Cap Ratio for 2022 is too high at 1.07. This means the market values the company lower than the debt level. The Liquidity Ratio for 2022 is 1.29 and if you add in Cash Flow after dividends, the ratio is good at 1.57. The Debt Ratio is too low at 1.23 and I prefer this to be at 1.50 or higher. The Leverage and Debt/Equity Ratios are too high at 5.40 and 4.40. I prefer them to be below 3.00 and 2.00.
The Total Return per year is shown below for years of 5 to 35 to the end of 2022. 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. |
|---|---|---|---|---|---|
| 2017 | 5 | 4.56% | 12.12% | 10.20% | 1.91% |
| 2012 | 10 | -16.23% | 0.80% | -2.20% | 3.00% |
| 2007 | 15 | -10.17% | -3.70% | -6.53% | 2.83% |
| 2002 | 20 | -7.73% | 3.71% | -1.71% | 5.42% |
| 1997 | 25 | -6.16% | 2.32% | -2.46% | 4.78% |
| 1992 | 30 | -5.16% | 6.61% | -0.42% | 7.03% |
| 1987 | 35 | -4.27% | 6.41% | -0.49% | 6.90% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are negative and therefore unusable. The corresponding 10 year ratios are negative and unusable. The corresponding historical ratios are 14.90, 15.26 and 21.19. The current P/E Ratio is 14.07 based on $10.69 and EPS estimate for 2023 of $0.76. This is lower than the low ratio of the historical median ratios. This stock price testing suggests that the stock price is relatively cheap.
I have Funds from Operations (FFO) data. The 5-year low, median, and high median Price/ Funds from Operations Ratios are 2.16, 2.92 and 3.74. The corresponding 10 year ratios are 2.19, 3.02 and 3.89. The current P/FFO is 2.15 based on a stock price of $10.69 and FFO estimate for 2023 of $4.97. This ratio is below the low ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively cheap.
I have Adjusted Funds from Operations (AFFO) data. The 5-year low, median, and high median Price/ Adjusted Funds from Operations Ratios are 3.63, 5.06 and 6.49. The corresponding 10 year ratios are 4.48, 6.14 and 7.91. The current P/AFFO is 4.51 based on a stock price of $10.69 and AFFO estimate for 2023 of $2.37. This ratio is between the low and median ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $8.37. The 10-year low, median, and high median Price/Graham Price Ratios are 0.31, 0.43 and 0.60. The current P/GP Ratio is 1.28 based on a stock price of $10.69. The current ratio is above the high ratio of the 10 year median ratio. 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 17.06 based on a Book Value of $168M, Book Value per Share of $0.63 and a stock price of $10.69. The current P/B Ratio is 1212% above the 10 year median value. This stock price testing suggests that the stock price is relatively expensive.
I also have a Book Value per Share estimate for $2.09. The 10 year P/B Ratio here is 0.84 (because they calculate the Book Value differently than I do). The current P/B Ratio is 5.11 based on a stock price of $10.69, and Book Value of $560.3M. This ratio is 506% 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 3.40. The current P/CF Ratio is 2.75 based on Cash Flow per Share estimate for 2023 of $3.89, Cash Flow of $1,043M and a stock price of $10.69. The current ratio is 19% below the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get an historical median dividend yield of 5.39%. The current dividend yield is 2.06% based on a dividend of $0.22 and a stock price of $10.69. The current ratio is 62% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 median dividend yield of 2.25%. The current dividend yield is 2.06% based on a dividend of $0.22 and a stock price of $10.69. The current ratio is 7% below the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
The 10-year median Price/Sales (Revenue) Ratio is 1.05. The current P/S Ratio is 1.14 based on Revenue estimate for 2023 of $2,517M, Revenue per Share of $9.39 and a stock price of $10.69. The current ratio is 8% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
Results of stock price testing is that the stock price might be reasonable. There are problems with the testing. The dividend yield works best for dividend growth companies, but it is bad when companies cut their dividends. The P/B Ratio test says that the stock is expensive, because the current book value is low.
When I look at analysts’ recommendations, I find Strong Buy (3), Buy (6) and Hold (3). The consensus is a Buy. The 12 month consensus stock value of $15.54. This implies a total return of 47.73% with 45.37% from capital gains and 2.06% from dividends based on a current stock price of $10.69.
The last entry dated November 2022 on Stock Chase says Do Not Buy because the company trashed it balance sheet (Ross Healy). Ambrose O'Callaghan on Motley Fool says to buy as the stock is in oversold territory. Andrew Walker on Motley Fool says the company has done a good job getting its balance sheet in order. Personally, I agree with Ross Healy that this company does have a weak balance sheet. The company put out a Press Release on their fourth quarter of 2022.
Simply Wall Street reports on this stock via Yahoo Finance and says that the extremely negative double-digit change in profits expected does not drive a buy decision. EPS for 2024 is expected to be a loss of $0.20. Simply Wall Street gives 3 warnings of earnings are forecast to decline by an average of 48.9% per year for the next 3 years; dividend of 2.04% is not well covered by earnings or cash flows; and has a high level of debt.
TransAlta is an independent power producer based in Alberta, Canada. The company operates a diverse and growing fleet of electrical power generation assets in Canada, the United States, and Australia consisting of hydro, wind, solar, battery storage, gas, and energy transition facilities. Most of the company's revenues are derived from the sale of generation capacity, electricity, thermal energy, environmental attributes, and byproducts of power generation. 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 Monday, March 27, 2023 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.
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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