Ontario has banned coal-fired power plants for years now, and Alberta recently passed a law that will do the same, forcing all existing coal plants to shut down by 2030.
TransAlta Renewables Inc. (TSX:RNW) is a way for investors to play this trend, while getting paid a terrific 6.7% dividend.
The company came into existence in 2013 after being spun off from parent TransAlta Corporation (TSX:TA)(NYSE:TAC). It has grown to 2,441 megawatts of capacity, with 18 wind facilities, 13 hydroelectric plants, and eight gas-fired locations. 51% of capacity comes from wind power, 44% from natural gas, and just 5% from hydro.
TransAlta retains a significant ownership stake in its subsidiary. It currently owns 64% of shares.
Renewables has been busy acquiring assets from its parent, which is desperately trying to pay off debt, including the South Hedland Power Station in Australia, which is expected to add significantly to the bottom line when it becomes operational, sometime in mid-2017. Look for these sales to continue.
Renewables has already promised investors it will hike its already generous dividend once South Hedland comes online, with the raise expected to be 6-7%. Thus, investors who buy today can expect to be paid a 7% yield on cost in about a year.
Renewables is also decently valued. The company projects 2016 EBITDA of approximately $375 million, giving it an enterprise value-to-EBITDA ratio of 10.7. That’s on the lower end of its peers.
