TransAlta Corporation's Preferred Shares: A Stable Dividend Play with 2026 Redemption in Focus

Investors seeking steady income may find value in TransAlta Corporation’s Cumulative Redeemable Preferred Shares, Series A (TA.PR.D), which recently declared a quarterly dividend of $0.17981 per share, maintaining its fixed annual dividend rate of $0.71924 through March 2026. This analysis explores the investment merits of TA.PR.D, focusing on yield sustainability, price performance, and the looming 2026 redemption date.

Dividend Yield and Current Pricing

As of April 23, 2025, TA.PR.D traded at CAD 15.05, yielding approximately 4.78% annually based on its fixed dividend rate. This yield stands out in a low-interest-rate environment, offering investors a reliable income stream. For comparison:

The 4.78% yield exceeds the 2.03% spread over Government of Canada yields cited in TransAlta’s documentation, reflecting the shares’ risk premium. While preferred shares typically carry higher risk than government bonds, their fixed dividend and cumulative feature (ensuring missed payments are paid later) provide some stability.

Dividend Sustainability: Credit Metrics and Cash Flow

TransAlta’s ability to sustain dividends hinges on its financial health. The company holds a BBB- credit rating (investment grade) from DBRS and Ba1 from Moody’s, both near speculative grade. While this suggests some risk, TransAlta’s narrowing losses in Q4 2024 and focus on renewable energy projects (e.g., wind and solar) provide a foundation for cash flow stability.

The Series A preferred shares are non-convertible to common stock, but holders can elect to convert to Series B shares on March 31, 2026, or every five years thereafter. This redemption option adds uncertainty, as TransAlta may choose to redeem the shares at par value ($25) or allow dividend rates to reset based on market conditions. Investors should monitor credit metrics and interest rate trends post-2026.

Price Performance and Volatility

While TA.PR.D lacks granular price data for Q2 2025, its 52-week trading range (CAD 13.46–16.06) suggests limited volatility compared to broader markets. The shares’ 2.5% average weekly volatility (vs. 6.4% for renewables peers and 9.5% for equities) positions them as a relatively stable holding.

Tax Considerations and Investor Appeal

Dividends from TA.PR.D are classified as “eligible dividends” in Canada, offering a 50% gross-up and preferential tax rates. This makes them attractive to Canadian investors seeking tax-efficient income.

Risks and Considerations

• 2026 Redemption Risk: If TransAlta redeems the shares, investors may need to reinvest proceeds at lower yields.
• Interest Rate Sensitivity: Rising rates could pressure prices, though the fixed dividend shields income.
• Credit Downgrades: A drop below BBB- could increase borrowing costs, potentially squeezing dividend capacity.

Conclusion: A Hold for Income, with 2026 as a Pivot

TA.PR.D offers a solid 4.78% yield with predictable quarterly payouts, making it a suitable holding for income-focused portfolios. However, investors must weigh the 2026 redemption date and potential reset of dividend rates.

Key Data Points to Monitor:
- Credit Ratings: Maintain BBB- or higher to preserve financial flexibility.
- Redemption Decision: Track TransAlta’s capital allocation strategy post-March 2026.
- Price Volatility: Current stability at CAD 15.05 suggests limited downside risk barring adverse credit events.

For now, TA.PR.D remains a defensive income play, but its long-term appeal hinges on management’s decisions in 2026. Investors should consider dollar-cost averaging or pairing the shares with shorter-term fixed-income instruments to mitigate redemption risk.

In summary, TransAlta’s preferred shares provide a high-yield anchor in a portfolio, though their trajectory post-2026 will determine their lasting value.