TransAlta sinks into the red, says dividend safe

Tue Jul 31, 2012 2:16pm EDT
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By Jeffrey Jones

CALGARY, Alberta (Reuters) - TransAlta Corp (TA.TO: Quote) said on Tuesday its prized dividend is in no danger of being chopped even as the Canadian power producer posted a nearly C$800 million loss ($798 million) and will have to spend more to comply with a regulatory order.

TransAlta, which has been ordered to rebuild an Alberta coal-fired power plant it had wanted to decommission, said its own cash flow projections support the C$1.16-a-share annual payout even as it spends more than it had expected against a backdrop of weak power prices in its main markets.

It had warned shareholders last week to expect a second-quarter loss due to high maintenance costs and red ink in its energy trading division.

Even so, Chief Executive Dawn Farrell said TransALta could maintain the dividend, which totals C$265 million, given an outlook for cash flow over a range of assumptions. Such a payout would leave money left over to invest in growth projects as TransAlta targets an 8 percent to 10 percent total shareholder return.

It maintained its outlook for full-year funds from operations at the low end of a range of $800 million to $900 million.

The company has other options as well, making a dividend cut the last resort, she said.

"We think it would be pretty easy to attract a partner to projects, so we'd look at that," Farrell told analysts. "We also believe that we have a very strong reputation in the capital markets so we would look at that option."

TransAlta shares have fallen 25 percent this year, partly on fears about the dividend as electricity prices have weakened and after an Alberta arbitration panel ruled that the company must rebuild the Sundance Units 1 and 2. Previously TransAlta decided to decommission the units due to problems with the boiler tubes that forced a shutdown in late 2010.   Continued...