Transalta Corp (TA.TO)

This and its sister company Canadian Utilities (CU-T), have been hit for a variety of reasons, Alberta being the biggest. Everybody hates this one. A massive yield of 15%. He uses 5% as a sign as to when the flags go up. 6% means being very, very careful. Anything over 6% needs investigation. One of the issues they have are balance sheet questions. How can they continue to expand, how can they meet demands for working capital? The dividend is an easy thing to sacrifice in the near term. They have pushed much of their assets into Transalta Renewables (RNW-T). Analysts are saying that the value of Transalta Renewables is now equal to the price of Transalta, plus you get all the coal assets, plus you get some Hydro assets. If you can get around the dividend getting cut, the asset play looks quite interesting.

Dividend is not sustainable. You buy utilities for the safety of the stock and the safety of the dividend. This company has none of that. Any stock that yields 15%, the market is telling you that the dividend is not stable. A very troubled company.

Stock has a pretty defined downtrend. As a technical person he would say you don’t own a stock that looks like this. Expects there will be a rally into the first week or two of January, and would use that as a sell opportunity.

Wonders why you would want to get into this. If looking at a utility, you are looking for a safe, secure distribution over time. There are a lot of questions around this one because they haven’t executed very well along with the whole carbon capture scenario. About 65% of their power is generated from coal. Not something he would be stepping into.

This just continues to hit new lows, seemingly every month. It is a stone throw away from what he terms as “going into the blue”, and he recommends that people not play with companies like this. The 17% dividend is suspect. They are not even close to earning their dividend.

There are 2 things that are really a problem for the company. It is using coal to generate a lot of its power, which is a real no-no. Also, the government has changed the rules and put a deadline on the closure of coal fired plants. Thinks the company will stay at this low price for a while. Also, this will be a target for people wanting to do tax loss selling. He is staying away from this.

Chart shows a long downward trend and has just formed a double bottom. The interesting thing about power in Alberta is who is going to pick up the slack from the phase out of coal. This is not just a coal business, but has really been impacted by that. It will become clearer in the next few months. Watch the base and see if it breaks.

The stock, rightly so, has been punished for its high debt, poor cash flow and a negative ROE. He wants stocks with good price momentum, good valuation, and this stock has neither. The fear has been a dividend cut and more dilutive equity financing. There is a sum of the parts story that can get you a higher valuation than the current cash flow metric would presume. Alberta put out their climate change report which basically pushed out the phase-out of coal to 2030, so that gives them lots of time to transition their business to renewables, which they have been doing. About a month ago, they press released that they were in talks to be acquired. This fell through. prefers to play their preferreds giving less dividend risk.

This has a yield that tells us it is going to get cut. Double digit yields are really not sustainable. The renewables is probably worth $5.50-$5.75, so you get the coal asset for free. That is intriguing. Dividend yield of 8%. He is watching this.

A tough one to call. The share price has declined significantly. They have a significant stake in TransAlta Renewables (RNW-T), which if you back it out accounts for most of the share value of $6. The big concern is the new government in Alberta that is focused on climate change which may force early retirement of coal facilities which this company owns. Then you have to wonder how they are going to generate cash flow growth beyond 2018. In this environment, were highly leveraged companies are getting punished, there is some pressure on the stock and some speculation they may have to cut the dividend. If it got down to $5.50, he might start to nibble away at it because it would represent pretty good risk/reward.A tough one to call. The share price has declined significantly. They have a significant stake in TransAlta Renewables (RNW-T), which if you back it out accounts for most of the share value of $6. The big concern is the new government in Alberta that is focused on climate change which may force early retirement of coal facilities which this company owns. Then you have to wonder how they are going to generate cash flow growth beyond 2018. In this environment, were highly leveraged companies are getting punished, there is some pressure on the stock and some speculation they may have to cut the dividend. If it got down to $5.50, he might start to nibble away at it because it would represent pretty good risk/reward.A tough one to call. The share price has declined significantly. They have a significant stake in TransAlta Renewables (RNW-T), which if you back it out accounts for most of the share value of $6. The big concern is the new government in Alberta that is focused on climate change which may force early retirement of coal facilities which this company owns. Then you have to wonder how they are going to generate cash flow growth beyond 2018. In this environment, were highly leveraged companies are getting punished, there is some pressure on the stock and some speculation they may have to cut the dividend. If it got down to $5.50, he might start to nibble away at it because it would represent pretty good risk/reward.A tough one to call. The share price has declined significantly. They have a significant stake in TransAlta Renewables (RNW-T), which if you back it out accounts for most of the share value of $6. The big concern is the new government in Alberta that is focused on climate change which may force early retirement of coal facilities which this company owns. Then you have to wonder how they are going to generate cash flow growth beyond 2018. In this environment, were highly leveraged companies are getting punished, there is some pressure on the stock and some speculation they may have to cut the dividend. If it got down to $5.50, he might start to nibble away at it because it would represent pretty good risk/reward.A tough one to call. The share price has declined significantly. They have a significant stake in TransAlta Renewables (RNW-T), which if you back it out accounts for most of the share value of $6. The big concern is the new government in Alberta that is focused on climate change which may force early retirement of coal facilities which this company owns. Then you have to wonder how they are going to generate cash flow growth beyond 2018. In this environment, were highly leveraged companies are getting punished, there is some pressure on the stock and some speculation they may have to cut the dividend. If it got down to $5.50, he might start to nibble away at it because it would represent pretty good risk/reward.A tough one to call. The share price has declined significantly. They have a significant stake in Transalta Renewables (RNW-T), which if you back it out, accounts for most of the share value of $6. The big concern is the new government in Alberta that is focused on climate change which may force early retirement of coal facilities which this company owns. Then you have to wonder how they are going to generate cash flow growth beyond 2018. In this environment, where highly leveraged companies are being punished, there is some pressure on the stock and some speculation they may have to cut the dividend. If it got down to $5.50, he might start to nibble away at it because it would represent pretty good risk/reward. accounts for most of the accoutsaThey have a significant stake They They have a significant stake in TransAlta Renewables (RNW-T), which if you back it out accounts for most of the share value of $6. The big concern is the new government in Alberta that is focused on climate change which may force early retirement of coal facilities which this company owns. Then you have to wonder how they are going to generate cash flow growth beyond 2018. In this environment, were highly leveraged companies are getting punished, there is some pressure on the stock and some speculation they may have to cut the dividend. If it got down to $5.50, he might start to nibble away at it because it would represent pretty good risk/reward.

They have had a difficult time for several reasons. Alberta has had a difficult time with a much lower oil price. They also have coal plants and this is not the favourite way of producing electricity. They have also struggled with their capital cost and overall performance. There have been other alternatives that seemed like better buys. They have good assets, but an uncertain environment including the new government. Be patient for 6 months or move to something else.

The company has had so many issues. They just have not had a focus point. There are so many other companies that have done so much better on execution. They still have coal burning plants. They are not best in class. Prefers CPX-T and BLX-T.

Switched his holdings into Transalta Renewables (RNW-T), which has done a little bit, but Transalta has done significantly worse. What was not seen was the election of the NDP. The NDP said that they would like to speed up the removal of coal fired plants. That is really the overhang on the stock. That needs some clarification before you consider going into this.

On his Watch List. They are looking at possible legal problems which could hurt them. Also, the resource sector is hurting them. He is happy to stay away from this right now.

There is no growth and they cut their dividend in half earlier this year. She won’t comment on whether the dividend is safe now. They are having difficulty in growing cash flow. Don’t buy it for the yield. She prefers pipelines, REITs or Canadian bank stocks for yield.