TransAlta Renewables’ 7% yield is powered by wind

renewable energy etfs

A Member of Pat McKeough’s Inner Circle recently asked for his views on one of Canada’s largest generators of wind power. The company is also among the country’s largest publicly traded renewable power firms.

Pat notes that renewable energy relies heavily on government subsidies, although the firm sells its renewable power under long-term, guaranteed agreements with an average remaining contract life of 11 years. The high 7% yield also seems sustainable.

Q: Pat, could I please get your opinion on TransAlta Renewables (RNW)? Thank you very much.

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TransAlta Renewables, (symbol RNW on Toronto;, is one of the largest generators of wind power in Canada and is among the country’s largest publicly traded renewable power companies.

TransAlta owns 21 wind farms, 13 hydroelectric facilities, seven natural gas generation plants, one solar facility and one natural gas pipeline. Altogether, that makes for a total generating capacity of 2,414 megawatts. The facilities are located in the provinces of B.C., Alberta, Ontario, Quebec and New Brunswick as well as the U.S. states of Wyoming, Massachusetts and Minnesota. The company also has assets in the State of Western Australia.

In addition, TransAlta Renewables has interests in the 90-megawatt Big Level U.S. wind development project, currently under construction. It also expects to take a stake in the 29-megawatt Antrim U.S. wind development project.

Inner Circle: Rapid growth since 2013 with a 7% yield

Formed on May 28, 2013, the company first sold shares to the public and listed on the Toronto exchange in August of that year. It then acquired 28 wind and hydroelectric assets from TransAlta Corp. (symbol TA on Toronto) for $1.7 billion. TransAlta Corp. now holds 64% of TransAlta Renewables.

In the three months ended December 31, 2018, overall revenue rose 4.5%, to $140.0 million from $134.0 million a year earlier. Cash flow per share fell 6.8%, to $0.41 from $0.44. The drop was due in part to lower power generation from its most-profitable Canadian wind projects.

Wind power overall relies heavily on government subsidies and political support to make it profitable for operators. However, TransAlta Renewables cuts its risk by ensuring that its projects sell their renewable power under long-term, guaranteed agreements. Right now, its average contract life is 11 years. As well, one of the company’s main customers is its parent TransAlta Corp.

The stock currently yields a high 7.0%, and its dividend appears sustainable.

Recommendation in Pat’s Inner Circle: TransAlta Renewables is a hold.


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