TransAlta Shares Fall After Dividend Cut Amid Coal Phase-Out

  • Stock falls the most since 2008 at the open in Toronto
  • Company reduces dividend to help finance clean power

TransAlta Corp. slumped after the Alberta electricity generator cut its dividend in preparation for a phase-out of coal power in the province.

The shares fell 9.8 percent to C$3.94 at 11:40 a.m. in Toronto. It initially dropped 14 percent, the most on an intraday basis since 2008, to a record low. 

The quarterly dividend was cut to 4 Canadian cents a share from 18 cents, the company said in a release Thursday. Calgary-based TransAlta doesn’t expect to raise equity this year as the reduced dividend will “strengthen its balance sheet.”

“The dividend cut appears largely motivated by the need to improve the balance sheet in a period when TransAlta credit spreads have widened significantly,” Ben Pham, an analyst at BMO Capital Markets, said in a note to clients. “We were surprised by the extent of the reduction.”

TransAlta, which has more than 70 power plants in Canada, the U.S. and Australia, said it will negotiate with the government of Alberta to “ensure the company has the certainty and capacity” to invest in clean power.

Falling Dollar

“There is significant opportunity in this policy as we have brownfield and greenfield opportunities across the province that fit the policy environment,” Chief Executive Officer Dawn Farrell said in a conference call with analysts on Friday. The company expects the government to identify a coal phase-out negotiator by the end of the month and that negotiations on how to wind down coal will take about a year, she said.

The falling Canadian dollar is making it more expensive to build new wind and gas-powered generators, Farrell said. The cost to build new projects with those technologies is more than double the current market price for power of about C$30 a megawatt hour, she said.

Alberta, home to Canada’s oil sands and the largest carbon polluter among provinces, will need to replace about 6,000 megawatts of coal generation capacity with cleaner fuel sources such as wind and natural gas to meet the government’s goal of 30 percent renewable energy and a coal phase out by 2030.

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