TRANSALTA CORP. $24 (Toronto symbol TA; Conservative Growth Portfolio, Utilities sector; SI Rating: Average) operates 51 electric power plants in Canada, the United States, Mexico and Australia.

The company currently pays a quarterly dividend of $0.25 a share, for an annual yield of 4.2%.

TransAlta’s stock has stayed in a narrow range in the past three years. Investors feared that rising coal and natural gas prices, which account for 85% of TransAlta’s fuel needs, would force it to cut the dividend. Concerns over future maintenance costs at some of TransAlta’s older plants have also weighed on the stock.

However, TransAlta gets most of its coal from mines it owns in Alberta, which cuts its risk. These reserves should last 50 years. They also have less sulphur than other coal deposits, which helps cut down on harmful emissions.

That should help TransAlta comply with tougher new environmental laws. Increasing use of cleaner burning fuels such as natural gas will also cut the need to spend more on environmental controls, and free up enough cash for the current dividend.

Recent plant shutdowns for maintenance cut TransAlta’s revenue in the three months ended June 30, 2006 by 3.6%, to $599.0 million from $621.2 million a year earlier. But this work should improve the reliability of these plants.

Despite the lower revenues, profits in the quarter grew 23.1%, to $0.16 a share (total $31.1 million) from $0.13 a share ($25.8 million). These figures exclude unusual items. Cash flow per share rose 22.6%, to $0.76 from $0.62.

The strong cash flow has let TransAlta cut its long-term debt, from 1.0 times equity at the end of 2005 to 0.9 times at June 30, 2006. The lower debt cut TransAlta’s interest costs in the latest quarter by $13.8 million.

The stock now trades at 18.2 times the $1.32 a share it will probably earn this year. Profits should reach $1.44 in 2007, and the stock trades at 16.7 times that estimate.

TransAlta is a buy.