Should Income Investors Buy TransAlta Corporation (TSE:TA) Before Its Ex-Dividend?

Important news for shareholders and potential investors in TransAlta Corporation (TSX:TA): The dividend payment of CA$0.04 per share will be distributed into shareholder on 01 April 2018, and the stock will begin trading ex-dividend at an earlier date, 28 February 2018. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine TransAlta's latest financial data to analyse its dividend characteristics. View our latest analysis for TransAlta

Here's how I find good dividend stocks

If you are a dividend investor, you should always assess these five key metrics:

• Is their annual yield among the top 25% of dividend payers?
• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
• Has the amount of dividend per share grown over the past?
• Can it afford to pay the current rate of dividends from its earnings?
• Will the company be able to keep paying dividend based on the future earnings growth?

How well does TransAlta fit our criteria?

TA currently pays out twice what it is earning, according to its trailing twelve-month data, which suggests that the dividend is not well-covered by earnings by any means. In the near future, analysts are predicting a more sensible payout ratio of 67.13%, leading to a dividend yield of around 2.39%. EPS is also forecasted to fall to CA$0.02 in the upcoming year. The lower EPS on top of a lower payout ratio will lead to a fall in dividend payment moving forward. If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. Dividend payments from TransAlta have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. These characteristics do not bode well for income investors seeking reliable stream of dividends. Relative to peers, TransAlta has a yield of 2.39%, which is on the low-side for Renewable Energy stocks.

Next Steps:

After digging a little deeper into TransAlta's yield, it's easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I've compiled three essential aspects you should further examine:

• 1. Future Outlook: What are well-informed industry analysts predicting for TA’s future growth? Take a look at our free research report of analyst consensus for TA’s outlook.
• 2. Valuation: What is TA worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TA is currently mispriced by the market.
• 3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.