Time to eliminate my position in TransAlta !

I eliminated my position in TransAlta because I am concerned that investors in the stock were more bullish lately on Alberta power prices, and not on the force majeure/PPA termination proceeding. The stock had appreciated considerably and I felt that this was a good time to exit the remainder of my position. The dividend yield of 5.5%, which is below some of the former income trusts/high dividend-paying corporations that I cover, I feel there is better prospects available for near-term dividend growth for my portfolio.

Company Description

TransAlta is a non-regulated electric generation and marketing company with operations in Canada, Australia, and the U.S. Net generating capacity is approximately 8,700 MW. About 55% of the company's generating capacity is coal-fired, with about 20% gas-fired, and 25% from renewables (wind, hydro, biomass and geothermal).

Westshore Terminals is my favorite name in the industrial sector!

Westshore Terminals is my favorite name in the industrial sector because of:

1. Steady cash flow: Westshore's loading rate has moved substantially from a variable to a fixed rate, resulting in a significant increase in cash flow stability. Estimate of 2011 free cash flow of $1.30/unit (post-conversion) -which represents a very attractive 8.6% free cash flow yield.

2. Virtually no competition: Westshore's main competitor, Neptune, is capacity constrained at 6MMt (2009 shipments were 4.3MMt). Accordingly, Westshore benefits from a very attractive competitive dynamic.

3. Captive customer with long-lived asset: Teck plans to eventually increase tonnage to eventually 30MMt. Given the scarcity of port capacity, Teck will be motivated to use capacity at Westshore and not risk having that capacity allocated to other potential customers.

4. Clean balance sheet: Due to very strong cash flow historically, Westshore is in a very strong financial position. Westshore has paid out $479MM ($6.57/unit) in cash over the past 5 years, has zero debt and $94MM ($1.27/unit) in cash.

5. Take-out candidate: Westshore is an ideal candidate for a pension fund – as Westshore's long-term cash flow profile match well with a pension fund's long-term liabilities. I consider a joint bid between a pension fund, infrastructure player and a strategic player (i.e. Teck or CP) as highly likely.

 

Company Profile

Westshore Terminals Ltd. has been in business since 1970 and operates the largest coal loading facility on the west coast of North and South America, located at Roberts Bank, British Columbia. Westshore generates revenues on a throughput basis and receives a handling charge from customers based on volumes of coal exported through the Terminal. Westshore does not assume ownership of the coal and is therefore not directly exposed to the price of the commodity.

Recently Westshore Terminals released Q1 results that were below m yestimates as known issues, including harsh winter weather and equipment failures, impacted coal shipments more than expected. Coal shipments were 5.9MM tonnes in the quarter vs. our 6.5MM tonnes estimate leading to EBITDAR of $23MM vs. our $30MM estimate and revenue of $50MM vs. our $55MM.

Maintaining distributions. Westshore’s distribution of $0.27/unit was as expected and I note that the Board tends to make Q1 on the low side and ramp distributions through the year. Therefore maintaining the full year distribution estimates which reflects this seasonality. I  also note that the $43MM double dumper project and $10MM chute refurbishment project will be funded out of cash on hand and term bank debt and will not impact distributions.

No change in outlook. Although there is a fair amount of room to exceed the provided guidance, I note that management did not change their outlook despite the difficult Q1 operating environment. Management continues to expect 2011 volumes to exceed 2010 levels which came in at 24.7MM tonnes. I also note that Teck Resources reiterated their FY11 sales guidance for 24.5-25.5MM tonnes after revising Q1 sales lower giving us further confidence in our expected full year shipping volumes.

Costs set to decline. I note that it took Westshore approximately two weeks to replace a damaged gearbox and complete repairs in order to resume regular operations. Coupled with increasing levels of trained employees on automation and higher overtime costs to combat the harsh winter weather, I expect these costs to decline in the coming quarters leading to margin improvements.

Volume locked-in with long-term contract. Westshore announced at the end of Q1 an agreement with Grande Cache Coal to exclusively handle its annual coal tonnages that it ships through West Coast ports through to 2022. Although little detail was provided, I believe that the 1.3MM tonnes that Grande Cache Coal shipped in 2010 will likely expand as there are positive indications that they will look to increase their coal production to over 3MM tonnes in the next few years.

Capacity set to increase. In an indication of overwhelming demand, WTE will be proceeding with the capital upgrades involving the change out of the existing single dumper with a double dumper. The anticipated costs for this project will be approximately $43MM (to be financed by term bank debt) and will take until the end of 2012 to complete. Once complete, it is anticipated that the rated terminal throughput capacity will be approximately 33MM tonnes, up from the current capacity levels of approximately 28-29MM tonnes. Ensuring sufficient liquidity,  management noted that there will be no large principle repayments required until maturity on the anticipated term bank debt.

Another Look at New Flyer Industries

New Flyer Industries (NFI-UN - Dividend Yield 12.97%) is one of my largest single clean energy investments. The company describes itself as the "leader in the heavy-duty bus market for the US and Canada. New Flyer Industries is  a company likely to benefit from peak oil. Both a trend towards urbanization, and unaffordable suburban commutes should favor bus transit.  While rail transit is more efficient and more pleasant, it takes years to build out rail transit.  Bus transit only requires the purchase of busses, and perhaps some repainting of roads and other minor changes to improve bus speed by giving them preferential right-of way. Since the company pays a large combined dividend/interest payment, I've been happy with the overall results of my investment.  The Payout Ratio since the IPO have average less than 80% and distributions have been paid for 66 consecutive months.

New Flyer's structure is unusual, with cash flows and payments to holders of "Income Deposit Securities" or IDSs.  Each IDSs is composed of a common share of New Flyer Industries, Inc., an Ontario Corporation, and C$5.53 principal amount of subordinated notes of "NFI ULC" an Alberta unlimited liability corporation.  All dividends paid by NFI to Canadian residents on the common shares after December 31, 2005 are designated as "eligible dividends" for purposes of the enhanced dividend tax credit rules contained in the Income Tax Act (Canada) and any corresponding provincial and territorial tax legislation.

Creating a Passive Income gives you more time and money to spend on living your life.

Passive income is generated when you are making an income without having to work for it. For example if you own a business, that you have setup to run completely on its own, or if you own shares in a company that pays you annual dividends, or perhaps a piece of real estate that generates capital or rental returns.

All these investment techniques earn you passive income. because you are not limited by the amount of hours you can spend per day working on them. Instead of working for money, you now have money working for you. This is the true essence of any effective wealth creation strategy. Maximum return for minimum effort.

Medical Facilities Corporation

TSX: DR.UN

Market Cap (MM): 363

Yield: 8.6%

Medical Facilities is a provider of surgical services at four specialty hospitals located in the states of South Dakota and Oklahoma andtwo ASCs (Ambulatory Surgery Centers) recently purchased in California.

It is my favorite holding for a high yield and a growth oriented  investment!

 The specialty hospitals perform scheduled procedures which include surgeries, medical imaging and diagnostics. These hospitals focus on a number of clinical specialties, including orthopedic, neurosurgery, ear nose and throat (ENT) and other surgical procedures. The ASCs complete less complex procedures that do not require overnight stays. Medical Facilities generates almost all of its income from the majority interests in the six facilities and distributes the bulk of its free cash flow to unit holders. The company went public in March 2004 and has consistently increased revenue and EBITDA since 1999. A distribution of $1.10 has been paid annually since it went public.

Outlook: Steady Improvements Expected for Remainder of Year. MFC reported solid Q1 results with YoY increases in surgical & pain cases largely offsetting a negative shift in payors. The company continues to perform well despite headwinds (US economic weakness & HC reforms) as cost containment measures have been effective in improving margins. Shareholders also passed the conversion proposal at the AGM today which provides the company with greater financial flexibility in the future to assist with acquisition opportunities.

Although demand for the units has increased since high-yielding trusts became taxed at the beginning of 2011, MFC's distribution is still attractive at a ~9% yield especially as the US market stabilizes.

Cineplex Inc. - Diversification Paying Dividends

Cineplex is the largest film exhibition company in Canada with approximately 67% of the market share of Canadian box office revenues. The company owns, operates or has an interest in approximately 130 theaters with 1,350 screens. The company operates the following brands: Cineplex Odeon, Galaxy, Famous Players, Colossus, Coliseum, SilverCity, Cinema City and Scotiabank Theatres.

Last week Cineplex reported Q1/11 results that were largely in line with expectations. Investors widely expected Q1/11 box office results to be weak on the back of tough YoY comps versus Avatar. Looking forward, we see the following diversification benefits: (i) the continued build out of higher-priced 3D, UltraAVX and D-BOX; (ii) a ramp-up in 3D sports alternative programming; (iii) continued growth in high-margin media revenues given a still strong national advertising market; (iv) growth in interactive media, particularly from the new DTO and VOD services once Ultraviolet becomes available in 6-8 months; and (v) continued increases in SCENE membership with positive implications for box office attendance, concession revenue and advertising rates.

The company increased the dividend +2.4% from $1.26 to 1.29 representing a dividend yield of 5.1% and a payout ratio (% of FCF) of 73% in 2011E and 64% in 2012E versus a target payout ratio of 65%-80%. Management indicated that the size of the dividend increase reflects a degree of conservatism as well as the desire to finalize the CDCP agreement,
which is expected by the end of Q2/11. I suspect the company also wants to maintain a certain degree of financial flexibility in the event acquisition
opportunities arise.