With a focus on renewable energy, this power generator holds a lot of conceptual appeal due to its renewable energy focus. What’s more, this firm supports its high dividend by selling its wind and other power under long-term guaranteed contracts. This includes sales to its blue-chip parent company.
To further cut risk, the company also focuses on operating in safe jurisdictions.
Meanwhile, the stock trades at 17.6 times the company’s forward earnings forecast for 2023.
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The Growing Power of Dividends
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TRANSALTA RENEWABLES INC. (Toronto symbol RNW; www.transaltarenewables.com) owns 29 wind and solar farms, 13 hydroelectric facilities, eight natural gas generation plants, and one battery storage facility. Those projects are in Canada, the U.S. and Australia. TransAlta Corp. (Toronto symbol TA) holds 64% of the company.
TransAlta first sold shares in TransAlta Renewables on August 9, 2013, at $10 a share. After the IPO, TransAlta owned 80% of the renewables business.
Due to acquisitions and the building of new plants, TransAlta Renewables’ revenue rose 18.4%, from $259 million in 2016 to $462 million in 2018. Revenue then dipped 3.5% to $446 million in 2019 as lower production from its existing wind farms offset the contribution of acquisitions. Revenue fell 2.2% to $436 million in 2020 on lower demand from its gas-fired plants.
Cash flow improved 15.9%, from $245 million in 2016 to $284 million in 2017. Due to more shares outstanding, cash flow per share gained just 10.0%, from $1.10 to $1.21. Cash flow slipped to $1.15 a share (or a total of $295 million) in 2018, before falling again to $1.11 a share (or $293 million) in 2019. It rose to $1.14 a share (or $304 million) for 2020.
Dividend Stocks: Revenue is up strongly to support the high payout
TransAlta Renewables last raised its monthly dividend by 6.8% with the September 2017 payment, from $0.07333 a share to $0.07833. The new annual rate of $0.94 yields a high 6.8%.
In the quarter ended June 30, 2022, revenue jumped 51.1%, to $139.0 million from $92.0 million a year earlier. The increase came from higher-than-average wind power production, plus acquisitions. Cash flow per share increased 22.2%, to $0.33 from $0.27.
Wind power generation relies heavily on government subsidies and political support to make it profitable. However, TransAlta Renewables cuts risk by selling its power under long-term, guaranteed agreements. One of its main customers is its parent (TransAlta Corp.), which is also a benefit.
Right now, its average contract life is 11 years.
Recommendation in Dividend Advisor: TransAlta Renewables is a buy.