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Should Hydro One Ltd. (TSX:H) Stock Be on Your TFSA Buy List?

Hydro One (TSX:H) is back in the headlines after a proposed takeover appears to be in trouble.

Let’s take a look at the current situation to see if the stock deserves to be in your portfolio today.

Rough year

Hydro One has had a year that most investors would like to forget.

The Progressive Conservative win in the Ontario elections in June resulted in the July resignation of the entire board of directors as well as the exit of the CEO. During the election campaign, Doug Ford vowed to fire then-CEO Mayo Schmidt, citing electricity rates that are too high for families and businesses.

Ford won the election and the new premier made good on his promise. A new board was named in August and a new acting CEO and acting CFO are now in place with other senior executives.

One fallout from the whole mess appears to be the scuttling of Hydro One’s previously negotiated acquisition of U.S.-based Avista Corp. The $6.7 billion deal was just rejected by a U.S. regulator in Washington State after the commission decided the sale would not be in the public interest. The report cited the willingness of the Ontario government to interfere in Hydro One’s operations as the reason for shooting down the deal.

Ontario partially privatized Hydro One in 2015, but the province stills owns 47% of the company.

Upside

The market reacted positively to the news that the Avista deal appears to be dead. Hydro One’s share price has increased in the days following the decision, although the stock has given back some of initial gains. At the time of writing, Hydro One trades for $21 per share compared to the closing price for $21.37 before the Avista announcement.

Despite the distractions, the company is doing reasonably well. For the first nine months of 2018, net income was $616 million compared to $503 million in the same period in 2017. Hydro One reported Q3 2018 adjusted earnings that were pretty much in line with Q3 last year.

During the quarter the company announced plans to buy power-distribution assets in Peterborough and Orillia.

Dividend

Hydro One raised the quarterly dividend by 5% in May to $0.23 per share. That’s good for a yield of 4.4%.

Should you buy?

Investors should keep an eye on the Ontario government. Premier Ford has vowed to lower electricity rates by 12%. There are different ways being considered to do this, and how things roll out could have a big impact on the share price one way or the other, depending on the market’s perception of the plan.

The stock looked cheap when it was below $19, but I would probably stay on the sidelines right now. Other companies might be more attractive today for a TFSA pick.

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Fool contributor Andrew Walker has no position in any stock mentioned.

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