Have You Considered Hydro One Ltd. Lately?

Despite being the subject of scrutiny lately, Hydro One Ltd. (TSX:H) remains a great investment option with plenty of long-term upside.

| More on:
The Motley Fool

Utility investments can be some of the most intriguing and profitable investments in the market. Hydro One Ltd. (TSX:H) is one such utility that poses a significant amount of long-term potential for investors.

The utility stereotype

Utilities are often overlooked as investments due, in part, to their stereotype as being boring investments that lack any type of significant growth that stems from the business model that utilities adhere to.

Utilities generate most of their revenue from regulated contract agreements with the local communities that the utility serves. This, in turn, provides a steady, secure stream of revenue for the utility, but often leaves little in the way of growth apart from facility upgrades and the demand growth that comes from the organic growth of the communities that the utility serves.

How does Hydro One stack up?

For those investors not familiar with Hydro One, the company is the nearly exclusive electricity transmission and distribution company in Ontario. That nearly exclusive status effectively makes Hydro One a monopoly in Ontario, with the few remaining players in Ontario comprising more of a rounding an error than offering true competition to Hydro One.

In other words, Hydro One has a very impressive moat that should keep a steady stream of revenue to the joy of investors. The one potential downside in nearly full control of the market is that price increases are more scrutinized, and opposition to increases will be substantially more vocal, as was seen earlier this year.

Hydro One also offers investors a respectable dividend that provides a 3.87% yield, which, considering the stable revenue stream, makes the company all that more appealing to long-term investors.

In terms of results, Hydro One provided a quarterly update last week that came in lower than the previous quarter, with that difference largely attributed to the costs associated with the acquisition of Washington-based Avista Corp., which was completed in the most recent quarter.

Profit attributed to common shareholders dropped $14 million over the same quarter last year, coming in at $219 million. Excluding the costs from the acquisition, Hydro One’s profit shows a 2% improvement over the same quarter last year.

The impact of the acquisition was also witnessed in the gross revenue figure, which came in over 10% lower than the same period last year at $1.52 billion. With the acquisition excluded, net revenues saw an improvement of 1.3% to $847 million.

Seasonality also takes a toll on utilities, and in the most recent quarter, Hydro One witnessed some weakness stemming from the milder temperatures this past summer.

Is Hydro One a good investment?

Hydro One has been no stranger to controversy. The company has had to deal with customer outrage over rate hikes, and recently the Ontario Energy Board put the brakes on Hydro One’s planned increases over the next two years, and even went further in criticizing the company’s plans for further infrastructure development and increases to compensation packages.

In short, these issues could weigh down the stock in the short term, but they will do little to impact the long-term feasibility of income-seeking investors. If anything, the current pullback provides an opportunity for those investors to purchase into Hydro One at a discounted rate.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

More on Investing

money cash dividends
Stocks for Beginners

Where to Invest $10,000 in April 2024

If you've already created a diversified portfolio and are looking for more options from a windfall, here is where I…

Read more »

data analyze research
Investing

The Ultimate TSX Stock to Buy With $1,000 Right Now

Brookfield Asset Management (TSX:BAM) is one of the best Canadian stocks to buy for those looking to put capital to…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »