Hydro One (TSX: H) is a Toronto-based electricity distribution and transmission company. This utility boasts a monopoly in the province of Ontario, the most populous province in Canada. That alone makes this utility stock an attractive target. However, I’m looking beyond that fact and pinpointing three reasons this stock is worth buying before we officially move into the autumn season. Let’s jump in.
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Utility stocks are a great target in a shaky economy and volatile market . . .
The COVID-19 pandemic was a nightmare for many industries, particularly retailers that relied on brick-and-mortar locations. However, there were some industries and companies that were perfectly positioned to survive and even thrive in the face of the generational health crisis. Essential services remained open and operational, which was good news for utility stocks.
Shares of Hydro One suffered a quick and very temporary dip during the March 2020 market pullback. However, it had recouped its losses by October of that very same year. Experts and analysts are warning of a potential recession in Canada. Hydro One could be a great defensive target for your portfolio in late 2023 and early 2024.
Hydro One looks undervalued after suffering a dip in the late summer season
Shares of Hydro One have dipped 2.5% month over month as of close on Wednesday, September 6. Meanwhile, this utility stock has dropped 4.8% so far in 2023. That has dragged this stock into negative territory in the year-over-year period. Canadian investors can see more of its recent and past performance with the interactive price chart below.
Hydro One stock currently possesses a favourable price-to-earnings ratio of 20. Relative Strength Index (RSI) is a technical indicator that measures the price momentum of a given security. This utility stock last had an RSI of 37, which puts its shares just outside of technically oversold levels. Now may be a great time to scoop up Hydro One stock on the dip.
Investors should also target Hydro One for its dividend growth history
This company released its second quarter (Q2) fiscal 2023 earnings on August 9. Hydro One reported basic earnings per share (EPS) of $0.44 – up 2.3% compared to the previous year. Meanwhile, it reported total revenues of $1.9 billion – up from $1.8 billion in Q2 2022. In the first six months of fiscal 2023, the company delivered revenues of $3.9 billion, which was up from $3.9 billion in the first half of the previous fiscal year.
Like some of its top peers in the utility space, Hydro One is also looking to expand its rate base through aggressive capital investment. In Q2 2023, the company announced capital investments and in-service additions of $649 million and $413 million, respectively, compared to $612 million and $547 million in the prior year.
In its Q2 2023 report, Hydro One announced a quarterly distribution of $0.2964 per share. That represents a 3.3% yield at the time of this writing. This utility has delivered dividend growth in every year since its 2015 debut on the S&P/TSX Composite Index. Without a doubt, H is one of my favourite dividend aristocrats on the TSX.
