TransAlta’s Series E Preferred Shares Offer Stable Income Amid Rate Reset Environment

TransAlta Corporation (TSX: TA) has reaffirmed its commitment to steady returns for preferred shareholders with its latest dividend declaration for the Cumulative Redeemable Rate Reset First Preferred Shares, Series E (TA.PR.H). The $0.4308 per-share quarterly payout, consistent with the fixed dividend structure in place since September 2022, underscores the predictability of this instrument for income-focused investors.

The Dividend Structure: Fixed Stability in a Volatile Market

The Series E preferred shares carry an annual dividend rate of 6.894%, translating to $1.72352 per share annually, or $0.43088 quarterly. This rate remains fixed until September 30, 2027, after which it will reset based on prevailing market rates. Unlike floating-rate preferred shares (e.g., Series B and D), Series E offers zero interest rate risk for the next three years, a critical advantage in an era of uncertain monetary policy.

The ex-date of May 31, 2025, and record date of June 1, 2025, mean investors must hold shares by the close of trading on May 31 to receive the June 30 payout. This structure aligns with TransAlta’s quarterly dividend schedule, which has remained unchanged since 2022, with payments on March 31, June 30, September 30, and December 31.

A Decade of Consistency, Backed by Strong Balance Sheet

TransAlta’s preferred shares have delivered unbroken quarterly dividends since the Series E issuance in 2017, with no skips or cuts even during the 2020 pandemic. This reliability stems from the company’s investment-grade credit rating (BBB- by S&P) and a dividend coverage ratio of over 1.5x based on 2023 adjusted EBITDA.

The company’s focus on decarbonization—a 70% reduction in GHG emissions since 2015 and an MSCI ESG AA rating—has bolstered investor confidence. TransAlta’s shift toward renewable energy (now 42% of its portfolio) aligns with global climate goals, reducing regulatory and operational risks.

Preferred vs. Common: Why Series E Appeals to Income Seekers

While TransAlta’s common stock (TSX: TA) has underperformed broader markets over the past three years due to sector-specific headwinds, its preferred shares have offered capital preservation and steady income.

Key advantages of TA.PR.H include:
- Priority claim on dividends: Preferred shareholders rank above common stockholders in dividend distributions.
- Eligible dividends: Qualify for enhanced tax credits in Canada, boosting after-tax yields.
- Callable only at par: TransAlta can redeem shares at $25 per share starting September 2027, limiting downside risk.

Risks and Considerations

Investors should note:
1. Redemption risk: After September 2027, the dividend rate will reset, potentially lowering returns if market rates decline.
2. Currency exposure: All dividends are paid in Canadian dollars, impacting non-Canadian investors.
3. Liquidity: Preferred shares trade at lower volumes than common stock, though TA.PR.H maintains decent liquidity for a fixed-income instrument.

Conclusion: A Reliable Income Stream, but Mind the Clock

TransAlta’s Series E preferred shares remain a high-conviction holding for conservative investors seeking predictable cash flow until 2027. With a current yield of 6.9% (based on a $25.50 share price), the instrument outperforms most fixed-income alternatives.

However, the 2027 reset is a critical inflection point. Investors should monitor TransAlta’s renewable expansion progress and interest rate trends. For those willing to hold through the reset period, the shares offer a defensive income play backed by a financially stable utility with a 10-year dividend track record.

In a market hungry for yield, TA.PR.H’s blend of stability and ESG alignment positions it as a top-tier preferred security—provided investors remain mindful of its finite fixed-rate window.

For further details, review TransAlta’s latest annual report or contact investor relations at investor_relations@transalta.com.