Transalta Corp (TA.TO)

(Market Call Minute.) It has been a Sell for a long time and he hasn’t liked it, but down here it would be a Hold.

A bit of a tough story in the near term. Balance sheet is a little bit levered up and they need to de-lever it. They spun out Transalta Renewables (RNW-T) which unlocked some value. Have a significant amount of assets that they need to drop-down into Transalta Renewables. They’ll take that cash back and de-lever the balance sheet. He thinks they are committed to maintaining an investment grade balance sheet. It is going to take some time for them to work through this cycle, so you are going to have to be patient.

Most people worry about dividends being cut but you are fine with this one. If you think Alberta power prices will go up this would be good, but be does not think so. You are fine if you are buying it for the dividend. He has no utilities and might short some soon. Hold for now until rates rise.

Has been beaten up for good reason. They have a lot of coal-fired plants in Alberta. When the price of gas is down, coal is not a great place to be. Recently bought some assets in New Zealand. Thinks the dividend is safe, but can’t see anything in capital gains. Prefers others.

Cut their dividend last year. They are trying to preserve their cash and find an area of growth through acquisitions. Power prices are quite depressed and she doesn’t see any visible signs of cash flow earnings growth going forward.

(A Top Pick Jan 3/14. Down 14.17%.) This company hasn’t really executed. He would have liked to have gotten out of this sooner. Bought a little bit more at today’s price. This has a lot of moving parts.

2030 strip bond at 6.2%? With this, you have the coupon payments and you have the bond. Transalta is BB rated and could easily get downgraded to junk in the next couple of years. A junk company could potentially default, and if they do, those interest payments disappear. He would not recommend this company.

His company has this, is a Sector Outperform with medium risk and a $14 target. The issue is that they own the Transalta renewables, and there is a little bit of unknown as to how the transition between the 2 companies, as it passed through some of the earnings. He feels good with the dividend and holds it for the yield. Would be looking to add at some point.

(A Top Pick Jan 3/14. Down 14.09%.) This one went against him quickly and he looked to exit, but kept having indications of a sort of base. Still likes it. Fundamentally it is a fantastic company.

With the current environment in Alberta, he doesn’t see any big driver to put this company forward. Their business has always been the production and sale of energy. It has been a while since they have had positive earnings. Their cash flow does cover the dividend, but overall this company has been a disappointment for a number of years. Dividend of a little over 6% is relatively safe for the time being.

He is a sector strategist. He owns it for the yield. He is kicking himself because he should have got out. It has been a chronic underperformer. He is looking to sell into strength.

Has definitely been a perpetual under performer. He modestly likes the stock as he thinks it is showing the first signs of a turn. Fairly new CEO recently bought a bit of stock, and thinks that is a pretty good call. Thinks the dividend is stable. 7.11% yield.

Cut the dividend by quite a large margin a few months ago. There isn’t a lot of earnings growth. She doesn’t see good visibility for an increase in dividend. For income, you want to try and identify a dividend paying stock that has a very visible path to increase the dividend over time, so that if rates do start to move up, thde dividend will move along with the rate.

You want to own utility stocks for the earnings safety and safety of the dividend. With this one you have none of that. The dividend is not safe and earnings are not growing regularly. They are the opposite of EMA-T which is his favourite. Don’t go near TA-T or its preferreds.

6.2% strip bonds maturing in 2030? This is very long-term and his preference is to “not” Buy long term corporate bonds. The credit rating on this company is a low BBB, verging on a BB+, so it is not very high quality.