Transalta Corp (TA.TO)

(A Top Pick Jan 10/12. Down 16.22%.) Didn’t anticipate that the balance sheet would keep falling away underneath the company. The positive is that they have a very strong balance sheet and have raised a bunch of equity and have the money to continue paying the dividend. 7.2% yield.

Looking at the 10 year, it keeps going out of favour and doing a run. We are at a 10 year low, but there is probably no catalyst. If you have a 4 or 5 year view, this stock is probably very interesting. There are no problems they are worrying about. There is a cloud over the dividend.

Been under a lot of pressure and now have a “back to basics” plan. Going to try to hedge 70%-80% of their power ahead of time. Yield is about 7.8% and they are looking for about a 8%-10% total return for investors. If you are in this, it’s pretty much for the dividend and not much more. Expanding into Australia for resources so as resource extraction expands, they’ll be a part of it. Doesn’t see a lot of growth so basically it will move with interest rates.

Buffet being in it will provide some optimism. They will try to keep the dividend safe but he would be a little nervous. You don’t have to go here.

High yield. Power prices are very low. Did a recent equity issue to help finance a power plant in Australia. High participation in their DRIP so they can maintain their dividend. For the next while it is safe.

Gone through quite a bit of transformation over the last 15 years. Feels they had a wrongheaded policy of trying to maintain the dividend in the face of drastic business changes. A lot of their coal-fired generators are being phased out. Need to build new ones and need to look for new opportunities. Feels they should cut the dividend and use the money to build a new, efficient power generation in the right jurisdiction. Payout ratio is almost 100%.

Once dividend is north of 8 or so you have to question it because that is not normal. Normal for a utility should probably be about 5%. Market is probably telling you it is not sustainable.

There is hope, but why go there at the moment when you can buy Enbridge (ENB-T) or something else and get a similar yield without taking the same risks to see if they are going to turn it around? Would wait for one or even two quarters in a row to see an uptrend in earnings. (See Top Picks.)

Worries about the company. They run a bunch of aging coal facilities in Alberta and have frequent maintenance issues. Have a lot of capital costs that have to go into upgrading their generating plants. The market is telling you that the dividend is not sustainable. If the dividend does get cut, the stock could go down to $12 in a heartbeat.

Dividend is telling you there is an issue. You are lacking investment safety and dividend safety and the yield is telling you that. Poor assets in poor geographies.

Doesn’t like the company because he has had very bad luck with power companies. Power prices can be all over the map. Would prefer pipelines. 7.8% dividend yield.

He does not dig into balance sheet so doesn't know about safety of dividend. This is a fine stock to trade. The trend is down. There will be massive resistance over top of range since '09 so it is okay to trade only.

Stock has been going down because people have been questioning validity and ability of the company to continue to pay the dividend. Recently bought an Australian asset. On an unlevered basis, the asset should earn about 11%. They raised more equity capital than they needed because the balance sheet needed the capital. Issuing equity with an 8% dividend yield and making an investment that pays 11%, it just doesn’t make sense. There are better places to make money.

Very cheap and has a terrific yield of 8.2%. Trouble with the yield is that the earnings don’t cover it so they are basically paying it out of cash flow and he is seeing some deterioration in the balance sheet. Market is anticipating there will have to be some kind of a dividend cut. If they dropped the payout to match the earnings, it would still yield better than 5%, which is still a yield on a utility that is substantially better than average. This is a case of “Sell on anticipation” and “Buy on the news”.

An old fleet of assets. Power purchase agreement that ends a couple of years before their assets do. Doesn’t think dividend is secure.