In a global landscape where the energy markets often seem to be riding a never-ending rollercoaster, many investors understandably seek out a sense of stability – even better, a reliable stream of returns from their investments. Hydro One (TSX:H) stands out as Ontario’s largest electricity transmission and distribution company. It presents itself as a potentially attractive candidate for those looking to anchor a portion of their investment portfolios with dependable, dividend-paying stocks. With a 2.5% yield, it might not be the absolute highest in the utility sector. Yet it represents a tangible return from a company that provides an essential service.
Showing stability
Hydro One has demonstrated a pattern of consistent financial performance lately. Looking back at their fourth-quarter earnings report for 2024, the energy stock’s earnings per share (EPS) showed a positive trend, rising to $0.33 from $0.30 in the same quarter of the previous year. When we consider the full year’s performance, the picture is similarly positive, with EPS reaching $1.93 in 2024, up from $1.81 in 2023. This steady growth in earnings can be attributed to higher revenues generated from rates and the company’s implementation of effective cost management strategies. By carefully managing expenses and benefiting from regulated rate increases, Hydro One has been able to improve its profitability.
The energy stock’s dividend history also reflects a clear commitment to returning value to its shareholders. The most recent annual dividend is now at $1.26 per share. Furthermore, the energy stock’s dividend payout ratio currently stands at a sustainable 64.3%. This ratio indicates that Hydro One is distributing a reasonable portion of its earnings as dividends to its shareholders. That’s all while still retaining a significant amount of its profits to reinvest in its crucial infrastructure and pursue future growth initiatives.
Looking ahead
Hydro One isn’t just focused on its current operations. The company is also making strategic investments in a range of important infrastructure projects across Ontario. Examples of these key projects include the Chatham to Lakeshore Transmission Line and the Wawa to Porcupine Transmission Line. These initiatives underscore Hydro One’s vital role in supporting the province’s ongoing electrification efforts. Ontario continues to look to increase its reliance on electricity as a primary energy source. These infrastructure projects strategically position Hydro One for long-term growth by expanding its asset base and service area.
In terms of its overall financial health and profitability, Hydro One reported net income of $1.2 billion for 2024, with total revenues reaching $8.5 billion. The energy stock’s return on equity stands at a respectable 9.6%, and it maintains a net profit margin of 13.6%. These key financial metrics reflect a stable and profitable operation. Both are essential qualities to look for in companies that consistently pay dividends. A healthy return on equity indicates efficient use of capital, while a solid net profit margin demonstrates the company’s ability to control costs and generate profits from its revenues. These financial indicators provide further confidence in Hydro One’s ability to sustain its dividend payments.
Bottom line
Hydro One’s current dividend might not be the absolute highest among all utility stocks available to investors. Yet its consistent track record of financial performance, commitment to regular dividend payouts, solid underlying financials, and strategic investments in the future of Ontario’s energy infrastructure make it a compelling option for investors, especially investors who are prioritizing stability and reliability in their investment portfolios in the face of global energy market uncertainties.
As with any investment decision, it is always prudent for potential investors to conduct their own thorough due diligence, carefully examine the company’s financial statements and future prospects, and consider how a stock like Hydro One aligns with their individual investment goals, risk tolerance, and overall investment strategy. Understanding your own financial situation and objectives is key to making informed investment choices.
