Transalta Corp (TA.TO)

(Market Call Minute.) A serial under-performer. This is an industry that is booming, and they are having a difficult time.

Doesn’t see a lot of growth. They cut their dividend. If you want to own a dividend paying stock, there are other areas in the market that have more attractive cash flow and attractive earnings growth.

There is a decent yield on the stock, but he doesn’t think it is going up any time soon. Feels there are better places to put your money in the utility field. (See Top Picks.)

Reduced their dividend, so it is much more sustainable at these levels. One issue is that they are really tied to the Alberta power market, and prices have been fairly volatile. The renewable energy business is really heavily weighted to wind as opposed to other areas. They have assets that require a lot of capital expenditures, which is one of the issues he has for this company. If you can Buy at these levels, you are fine. There are other areas that are much more beneficial.

Does not love the company but likes the relative valuation. This space certainly has some negative headwinds. It is in an area where you generally want to own it. You are at the low end of the range going back 10 years. He does not give it a whole lot of downside from here. But he may cut the position if it does not rebound in the net number of months.

Looks at this one every quarter because it is cheap, but it doesn’t want to go up. Has some operational problems. If you own, Hold it for the dividend, otherwise just let the stock tell you when to Buy, which is when it starts to improve.

Have been building new plants in Australia. He has been leery about this one because their main business is still Alberta, and Alberta power prices have not been as strong as they were hoping. Prefers other utilities, which have had stronger growth. 5.9% dividend.

This is a utility, and investors should own utilities for the safety of their business and for the yield. However, this one is a very risky utility. Its business model is pretty iffy. Had problems and cut its dividend. You should not own this stock.

There is a feeling that they are having problems with regulatory reviews and there is litigation risk. The Alberta assets are struggling. There is also a risk that their coal plants could get assessed with environmental problems. It is probably going down another 10% before you want to take a hard look at it.

Probably a good entry point at this price. 5.5% yield.

Has looked at this 3 times because it is down so much, there might be an opportunity to Buy. There is a reason this is down. They are having some operational problems, and he is not sure how safe the dividend is. If you are not sure about a dividend on a utility stock, you have to take a very hard look at it. He would leave it for awhile, and let them show you a couple of more quarters of operational success.

It was probably good that they cut their dividend, because it had been acting as a real a drag on the balance sheet growth. The net worth of the company had actually been falling, pretty steadily for 3-4 years. It still is, but is kind of levelling out a little. Stock is cheap but the problem is that we need some earnings. So far the earnings have not changed.

Likes this as a longer-term hold, and feels the dividend is sustainable. Thinks you will see the payout ratio creep down coincident with the company deleveraging their balance sheet. The real “trick shot” for them is going to be the long-term growth potential, when some of their power facilities go from being fully contracted to having merchant power exposure. Longer-term he feels power prices in Western Canada are going to increase. Once they can sell into that merchant market, at prices that are almost twice as high as what they are currently contracted for, they will make money hand over fist. However this doesn’t happen for 4-5 years, so you have to be very patient. Thinks the breakup value is higher than the current stock price.

Thinks the dividend is relatively safe, but the growth aspects do not appear to be that attractive. They have a lot of older equipment/facilities in Alberta, and have some reasonable competition. 5% yield, but you can do better in other situations with more growth.

Cut their dividend to 5.5%. He is not a believer that there is a growth story in this one. Their history on running plants is not great.