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Hydro One Ltd. (TSX:H) Stock Sinks After Ford Ousts CEO: Should You Buy the Dip?

Hydro One Ltd. (TSX:H) stock fell another 1.79% on July 13 and shares were down 4.9% over the past week. On July 11, the company announced that CEO Mayo Schmidt and the board of directors would step down due to pressure from new Premier Doug Ford and the Ontario PC government. This fulfilled a campaign promise that Ford had made back in the spring.

The new board is not expected to be in place until August 15. The Ford government plans to introduce a bill that will endeavor to increase “transparency and accountability” at the utility. However, it’s unclear what kind of reforms the PC government has in mind beyond its rote criticism of the level of compensation. Critics of the move say that it will be difficult to lure talent to the utility in the midst of all of the political meddling. Additionally, the story may be even worse for shareholders going forward.

Four of the 10 new directors will be appointed by the new government. The new board will then be tasked with finding a new chief executive. Compensation will be a large focus after Mr. Schmidt’s $6.2 million annual salary was turned into a political weapon. It’s worth noting that the CEOs of Fortis Inc. and Emera Inc. both took in more annual compensation than did Mayo Schmidt.

Investors will now eagerly await the appointment of the new CEO and the company’s second-quarter results, the latter of which will be unveiled in early August. In the first quarter, Hydro One reported a 33% jump in profit from the prior year to $222 million. The board of directors also approved of a 5% hike in its quarterly dividend to $0.23 per share, thereby representing a 4.6% dividend yield.

Back in April I’d suggested that Hydro One remained a good long-term hold before Doug Ford’s campaign promise sent the stock on a steep decline; it has since rebounded until the announcement last week. That does not mean investors should give up on it just yet, however, even with political meddling frustrating shareholders.

It is unclear how the PC government plans to lower hydro rates by 12% while also granting a private company the degree of autonomy it will require to service shareholders. A leaked cabinet document in 2017 forecast that rates would remain relatively static until the mid-2020s, when Ontario citizens would experience a significant and steady hike in rates. Whatever the current political leadership, Hydro One is positioned to be a revenue machine over the next decade with a comfortably wide moat.

In the short-term, however, investors may have to endure volatility for the remainder of this year and likely into the next decade. Looking long, Hydro One is a secure bet with an attractive dividend. Those with a long time horizon can therefore justify stacking as we await new leadership.

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Fool contributor Ambrose O'Callaghan owns shares of HYDRO ONE LIMITED.

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