Transalta Corp (TA.TO)

This just broke to a new low a couple of days ago. It has yet to show signs of bottoming. It is currently underperforming the TSE Composite and is also trading below its 20 day moving average. Short-term momentum indicators are also trending down. Wait until you have some technical signs that the stock is actually reaching a low.

Owns a little, but has exited most of his holdings. He is not selling the rest now because it looks incredibly cheap and the dividend is quite nice. Not sure they can maintain the dividend. They managed to get themselves into trouble with the regulators in Alberta, by cutting power back at a time when they could replace it with more expensive power. This is going to survive, but he wouldn’t add to his holdings. If it went back to $10, he would probably Sell.

Wouldn’t be looking at this one today, with corporate taxes going up in Alberta. There are so many uncertainties there. This company has had its problems in the last few years, and he is not sure that they have been entirely mitigated.

They are price takers and electricity demand in Alberta has been in decline over the last year and a half. They have a project in Australia that relies on new mines coming on line and there are questions if this was a good use of capital.

Incredible that this is so low. The news hasn’t been that bad. They are focusing on renewable energy and dropping that down into Transalta Renewables to get cash back up into the parent company. Transitioning from the old energy/coal fired world into natural gas and have had a lot of maintenance problems. Power prices in Alberta have hit them hard. At these prices he would probably hold on. Don’t try to bottom fish.

The balance sheet has been fading for years and years and now their earnings outlook has collapsed. You better cross your fingers. It held up against its book value for years and years. The market is now saying ‘forget it’ and the stock has plunged. His fair market value is still 14% below current price, but there is always the chance something will happen.

In investing for dividends you are investing for total return. It looks like a good dividend, but the company may not be in a position to grow it and might cut it. This company does not participate in improvement in the economy. They are not in a position to grow their dividend. Avoid this group as a whole. Be careful about averaging down.

(His VP has this in his portfolio.) He would question if the 9% dividend was safe. Recently had some problems with the regulators, because as he understands it, they were taking certain things off line when prices were high. They could end up having multimillion dollar penalties for that. Thinks there could be tax loss selling before the end of the year. Longer-term they should probably do well, but the recent news makes it iffier for the short term.

Had a bit of a slap on the wrist because of a ruling on their pricing. As a contrarian investor, that is the kind of thing that you want to perk your ears up at. It’s a one-time event, and the market panics on one-time events. However, the issue hitting them extends a little beyond pricing issues. They have Alberta and Alberta power prices are about as low as they have been in a long, long time. They cut their dividend, which was probably the right thing to do.

He would look at it as his infrastructure fund, but is avoiding it at present. They are up against some charges of price fixing. The main headwind is their coal plant with the NDP government. Another headwind is the Alberta economy.

This has been challenged for a long time. First because they have unsustainable dividends that they couldn’t support, but kept on paying. The challenge right now is that they have a big coal generation portfolio, which under legislation to come, will be phased out in the next few years. Have an operation in Australia which is doing okay. Thinks the company will still be around, but they have to make some adjustments.

Doesn’t own the stock because there is no dividend growth potential. The big question mark is that in 2017 a number of their PPA’s (Power Purchasing Agreement) in Alberta come off, and whether they can sell power into the spot market at a good price. 7.4% is a decent yield and it is sustainable.

Power pricing in Alberta remains very challenging and very difficult. You have the NDP government in there, and this company is in the coal business. Hasn’t demonstrated a lot of management expertise at running the business. Not an investment you need to be in.

It has a lot of potential and a nice dividend. There are a lot of people sitting on two sides of the fence as to where it is going to go. Long term it should do well, but there is not enough clarity right now.

He owns the preferred shares, because he feels the risk to return on a yield basis with preferreds is meaningful at 5.75%. Although common shares are a little too rich for him, he likes the 5.75% on the preferreds.