TransAlta’s Dividend Still Looks Safe

Article Excerpt

TRANSALTA CORP. $24 (Toronto symbol TA; SI Rating: Average) earned $0.35 a share in the three months ended December 31, 2005, up 9.4% from $0.32 a year earlier. However, if you disregard gains on the sale of assets, TransAlta’s per-share earnings in the quarter grew 52.6%, to $0.29 from $0.19. Cash flow per share rose 32.5%, to $1.03 from $0.78, while revenue grew 22.7%, to $810.1 million from $660.1 million. In the past few years, TransAlta has spent heavily building new plants and upgrading existing ones (capital spending peaked at $7.41 a share in 2001). Higher depreciation charges and write-offs cut its earnings, and raised fears that the company would have to cut its $1.00 dividend, which yields 4.2%. However, these are non-cash charges that had no affect on TransAlta’s cash flow. TransAlta’s heavy capital spending should pay off with fewer maintenance shutdowns in the next few years. That will let the company take advantage of rising power prices, although it will…

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