Earlier today, Transalta Renewables (TSE:RNW) announced its Fiscal 2023 outlook, which sent the stock plunging by over 15% and its dividend yield to ~7.7%. The company expects its adjusted EBITDA to come between C$495 million – C$535 million, slightly higher than its 2022 guidance of C$485 million – C$525 million. However, its cash available for distribution (CAFD) forecast is about 9.5% lower year-over-year, going from a range of C$245 million – C$285 million to a lower forecast of C$230 million – C$270 million. Free cash flow is expected to reach between C$340 million and C$380 million, C$5 million lower than last year’s estimate.
What investors might not like is that the company’s payout ratio is now expected to be about 100% for the next year, meaning the company won’t have much money to invest in growth.
Transalta stated that it’s now harder to find accretive deals due to rising interest rates and competition. Notably, Transalta also mentioned that it has contracts that are set to expire in the short and medium term, which will adversely affect its cash flows.
Is Transalta Renewables Stock a Buy, According to Analysts?
TransAlta Renewables has a Moderate Buy consensus rating based on two Buys and five Holds assigned in the past three months. The average RNW price forecast of C$16.79 implies 37.3% upside potential.
The Takeaway
After falling by 15%, Transalta Renewables stock now has a 7.7% dividend yield. This is an enticing yield; however, investors need to consider that there is little to no room for dividend growth in the near term due to the company’s high payout ratio and low growth.
