Updated June 21, 2021 by Bob Ciura

The renewable energy industry is not known for its recession-resistant companies. Companies in the industry are typically unprofitable and typically don’t pay dividends to their shareholders.

Many investors could avoid the renewable energy industry as a result, but TransAlta Renewables (TRSWF) is an underrated renewable energy company. TransAlta is attractive to dividend growth investors for a number of reasons. First, it has a high dividend yield of more than 4%.

In addition to its high dividend yield, TransAlta Renewables is also unique because it pays monthly dividends instead of the traditional quarterly payout plan.

You can download our full list of 53 monthly dividend stocks (along with relevant financial metrics like dividend yields and payout ratios) by clicking the link below:

TransAlta Renewables’ high dividend yield and monthly dividend payments are two big reasons this company stands out for income investors.

Still, all high yield stocks require adequate due diligence to ensure their payout is sustainable.

Business overview

TransAlta Renewables is a renewable energy infrastructure company headquartered in Calgary, Alberta.
With a market capitalization of over $ 4 billion, TransAlta is Canada’s largest producer of wind energy and one of the largest producers of renewable energy overall.

The stock is listed in New York and Toronto.

Its history in renewable power generation goes back more than 100 years. In 2013 the company was spun off from TransAlta, which remains a major shareholder in the alternative power generation company.

Source: Investor Presentation

The company has kept or increased its dividend every year since 2014, with an average growth of 4% per year. TransAlta Renewables owns 13 hydropower plants, 23 wind farms, 7 natural gas plants, 1 battery system and 1 solar system. The company has a total of over 2,500 megawatts of gross generating capacity in operation, either directly or through commercial investments.

TransAlta tries to grow in the long term by focusing on renewable energy and gas power generation. The company has strong in-house cash generation that allows it to invest strategically over time to grow its portfolio. These investments give the company a positive growth outlook.

Growth prospects

TransAlta’s growth record is quite strong. The company has continuously expanded its capacity in recent years thanks to its investments in wind, solar and hydropower plants.

Source: Investor Presentation

TransAlta has made more than $ 2.7 billion (in US dollars) in investments since it began operating as a standalone company a few years ago.

TransAlta Renewables has had strong financial results over the past few periods. TransAlta Renewables announced its first quarter results on May 12ththe. Renewable energy generation dropped on 1,109 GWh compared to 1,173 GWh in the same period of the previous year. Despite this, Revenue of $ 104 million increased 15% year over year on a currency-neutral basis.

The comparable EBITDA increased by 4%, while the FFO was in line with the prior-year quarter. cash register was available for distribution was also identical to the same period of the previous year, at $ 0.28 per share.

Organic growth is a catalyst for the future, as is acquisitions. For example, meIn the first quarter, the company completed previously announced acquisitions of a 303 megawatt asset portfolio of his parents Companies, TransAlta Corpspeech, including 274 MW wind power.

For 2021, TransAlta Renewables expects comparable EBITDA between 480 and 520 million US dollars, which would correspond to a growth of 8% in the middle. We expect annual FFO growth of 2% per share for the next five years.

Dividend analysis

TransAlta Renewables’ dividend is obviously a big draw for investors given the high yield. Since it isn’t necessarily a growth company, total returns will be heavily dividend-dependent in the years to come.

Source: Investor Presentation

The company’s dividend has increased at an average rate of ~ 3% annually since it went public in 2013 and is now $ 0.94 per share annually in Canadian dollars. In US dollars, the annualized dividend payout is approximately $ 0.76 per share, which translates to a dividend yield of 4.6%.

Note: As a Canadian stock, US investors who invest in the company outside of a retirement account will be charged a 15% dividend tax. Check out our guide to Canadian taxes for US investors here.

Stocks are up over 50% over the past year, a massive and uncharacteristic rally for the stock.

Since going public, the company has steadily increased its cash available for distribution. In 2018, the payout ratio in terms of earnings was 71% and 82% in terms of distributable cash. We expect a payout ratio of around 67% for 2021.

With this in mind, we consider the payout to be secure for the foreseeable future. There might even be room for further dividend growth as the company’s growth investments go online and add to cash flow growth.

Final thoughts

TransAlta Renewables’ high dividend yield and monthly dividend payments are instantly appealing to income investors and retirees alike. However, due diligence is required to ensure that such a high dividend yield is sustainable.

This analysis suggests that the company’s dividend is very secure as measured by the cash available for distribution or working capital.

The price of the shares rose significantly in the past year. While this has rewarded existing shareholders, it makes the stock less attractive for new investments due to its higher valuation and lower dividend yield.

However, investors looking for a safe monthly dividend from the renewable energy industry could do well with owning TransAlta Renewables.

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