With a focus on renewable energy, TransAlta Renewables 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.
The stock trades at just 16.7 times the company’s 2023 earnings forecast.
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TRANSALTA RENEWABLES INC. (Toronto symbol RNW) 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: The payout ratio should remain high on lower spending for TransAlta Renewables
TransAlta Renewables last raised its monthly dividend by 6.8% with the September 2017 payment, to $0.07833 from $0.07333. The new annual rate of $0.94 yields a high 7.9%.
The stock fell in late December after the company announced a lower cash flow forecast for 2023.
TransAlta Renewables expects to generate cash flow of between $230 million to $270 million in 2023. That’s down roughly 6% from its expected 2022 cash flow range of $245 million to $285 million. The decline is mainly due to higher maintenance spending and financing costs.
On a per-share basis, the company’s cash flow will range from $0.86 to $1.01 a share in 2023. Based on the midpoint of that range—$0.935 a share—the dividend payout ratio is a high 94.1%.
In 2024, TransAlta Renewables expects to pay an additional $55 million in taxes as it starts up new projects in Canada and Australia. As well, several contracts will expire in the next few years.
Despite these setbacks, the company plans to maintain the current dividend rate by spending less on new projects. It could also take over more assets from parent TransAlta, which would cut its tax bill.
TransAlta Renewables’ Dividend Sustainability Rating is Above Average.
Recommendation in Dividend Advisor: TransAlta Renewables is a buy.
Comments
Shiv
Genius recommendation! I bought it when TSI recommended this stock earlier and it lost 50% of its value.
Thanks for your comment. Stock prices are volatile and largely unpredictable. No analyst gets it right every time. That’s why we focus on our three-part investment approach: Invest mainly in well-established companies, spread your money out across the five main economic sectors, and downplay stocks that are in the broker/media limelight. You’ll still have a few poor performers in your portfolios. That’s especially so in a market downturn. But we think you’ll find that, overall, we outdo most of our competitors.
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Genius recommendation! I bought it when TSI recommended this stock earlier and it lost 50% of its value.
Thanks for your comment. Stock prices are volatile and largely unpredictable. No analyst gets it right every time. That’s why we focus on our three-part investment approach: Invest mainly in well-established companies, spread your money out across the five main economic sectors, and downplay stocks that are in the broker/media limelight. You’ll still have a few poor performers in your portfolios. That’s especially so in a market downturn. But we think you’ll find that, overall, we outdo most of our competitors.