You’re up at night worrying again. You look at your phone, clicking into your banking info, hoping that some sort of mysterious payment was added to your account, or perhaps a bill was refunded, or a credit came in, or something — anything that could bring up your income.
However, the only way to generate more passive income is to invest. Getting extra income through side hustles and the like can be hard work. But those are most definitely active methods. That’s why investing is the easiest and best long-term solution. Though, of course, you need the right investment.
That’s why today, we’re going to look at Hydro One (TSX: H). This dividend stock provides passive income unlike any other, with stability that can last a lifetime.
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Why it works
Hydro One remains one of the best investments thanks to its monopoly on electricity transmission and distribution in Ontario. In fact, over 95% of its earnings come from regulated wires, not power generation. This shields it from commodity swings, with steady and recession-resistant earnings.
Furthermore, Ontario’s integrated energy plan outlines the massive transmission expansion underway through 2050 to meet electricity demand. Hydro One is essential in this, as it is the only company that can build the lines! That’s decades of built-in, regulated income.
Durable dividend
Furthermore, this is a defensive stock that can generate impressive dividend income from its regulated utilities. Hydro One currently offers a beta of about 0.29, far less than the market. This makes it especially attractive when going through downturns or even the volatility of today’s market.
The dividend stock now pays a dividend at a 2.7% yield at writing, with a payout ratio at just 61% of earnings. That’s quite conservative in the utility world, which leaves it with a runway towards more dividend increases. So, while the yield isn’t all that high, it can still bring in $193 from a $7,000 investment!
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| H | $48.41 | 145 | $1.33 | $193 | Quarterly | $7,020 |
Considerations
Now, it’s not perfect. The yield is on the lower end, even when compared to other larger utilities on the TSX today. So, if you’re looking to maximize passive income through dividends alone, you’ll need other stocks on hand. Furthermore, growth is steady, but it’s not enormous. It targets mid- to high single-digit total returns. Sure, that’s excellent for stability, but on the slower end.
Then add on top that Hydro One is quite tied to Ontario regulation and political decisions. So, your portfolio could be too reliant on one province’s energy policy. One negative decision in Ontario or even an election could put a dent in returns.
Bottom line
If you want a lifelong dividend stock, Hydro One stock certainly fits the bill. It offers regulated returns, long-term growth from electrification, a low beta, and steady dividends. It’s the kind of dividend stock you can buy now and sleep soundly at night.
That being said, it should never be the only stock you hold. In fact, it’s limited by a modest yield and concentration. Instead, perhaps use it as a core anchor, diversifying with other investments as well. But for now, Hydro One certainly is a great start to creating a passive-income portfolio you can set and forget.
