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AltaGas Ltd. (TSX:ALA) vs TransAlta Corp. (TSX:TS): Which Dog Is Worth a Look?

It’s not always easy to keep our eyes on the long-term picture, although this is the mindset that has been proven to be the most profitable as an investment strategy.

From a macro perspective, utility stocks, which benefit from the fact that energy infrastructure and usage is stable, here to stay and is insensitive to the whims of the economy, should provide investors with steady income and stable stock prices.

And usually they do.

But here are two supposedly safe utility stocks that are theoretically supposed to bring investors stress-free income and slow and steady appreciation that have done nothing of the sort.

Let’s take a closer look at TransAlta Corp. (TSX:TA) and AltaGas Ltd (TSX:ALA), two stocks that have been the dogs of the utility world.

TransAlta

TransAlta Corporation has been having a rough time, to put it mildly.

Over the last 10 years, the stock has been on the decline, falling 56% to today’s level of $6.64.

In 2015, TransAlta was reporting big losses in its coal and energy trading businesses and was subsequently removed from the S&P/TSX 60 Index, found guilty and fined $50 million in the market manipulation case against it. It was then was forced to cut its dividend substantially.

To top it off, the company was downgraded by Moody’s to non-investment grade in that same year.

So where are we now?

Well, it doesn’t look good.

Coal still represents more than 40% of the company’s EBITDA, which is down significantly from a few years ago, but still big.

Although Alberta power pricing is staging a comeback, this big weighting in coal is one that sours TransAlta for the long term, as it is not a long-term growth sector, so there is still a lot of uncertainty.

With a dividend yield of a mere 2.42%, investors get little support there either.

AltaGas

AltaGas has been a thorn in my side, as market suspicions came to fruition yesterday, and the company seemed to direct investors to the conclusion that the dividend would have to be cut.

Although it was covered on a cash flow basis, it left little flexibility for the company to pursue its long-term growth plans, which are to focus on its growing gas and U.S. utilities businesses.

I get it.

So the stock got killed yesterday, and is now trading at 42% lower year-to-date.

But going forward, there are a few bright spots that long-term investors can focus on.

First, with its diversified infrastructure platform of high quality assets, and 80% of its EBITDA coming from contracted medium and long-term agreements, AltaGas has stability on its side.

Second, WGL’s high quality assets and market position will bring AltaGas many growth opportunities as well as significant earnings and cash flow accretion.

Finally, the recent approval of LNG Canada’s project bodes well for AltaGas stock, both in terms of market sentiment and in terms of actual volumes that will ultimately come through AltaGas Montney facilities.

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Fool contributor Karen Thomas owns shares of ALTAGAS LTD.

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