Transalta Renewables: A 7% Yielding Utility With Low Leverage

Transalta Renewables (OTC:TRSWF) has a diversified portfolio of clean energy generating power plants in Canada, Australia and the US. The total generating capacity is over 2,400 Megawatts with additional investments in gas pipelines in Australia.
Source: Transalta Renewables presentation
Utility stocks generally bore us as they carry high leverage and usually do not yield enough to pique our interest. In addition some like Washington Gas & light (WGL) are chronically overspending to replace their aging infrastructure and passing on (or trying to pass on) those costs to their consumers. TRSWF is different as their yield has actually got interesting enough for us to take a look. It yields 7.1% as of November 17 closing which stands above most utility stocks. Additionally, its spend on maintenance is a very small percentage of its cash flow and is likely to stay low due to relative new facilities.
1) Dividend safety The current yield of 7.1% has been the result of steady hikes along with the recent sell-off.
TRSWF third quarter results show how well covered this yield actually is.

Source: Transalta Renewables Q3-2017 financials
There are two useful ratios here. The first is the ratio of adjusted funds from operations (AFFO) which takes into account maintenance capital, to dividends paid. That ratio comes in just a shade above 70%. The second is the ratio of cash available for distribution which deducts required principal payments on debt from... Read more

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