Investors flock to Hydro One’s safety

Hydro One’s shares continue to hit new highs as investors look for shelter from tariffs, trade policy flip-flops in Washington and a rhetoric that seems to threaten Canadian sovereignty.

The shares (TSX:H) are 21% higher year-to-date and 35% in the last 12 months at the current price of $53.48. The movement has been driven by strong performance and a sense the utility is a safe haven in a time of unprecedented uncertainty.

Hydro One also offers a reliable dividend which yields 2.35% at current prices and has been rising, As well, it offers opportunity for growth that moves in tandem with the provincial economy.

First quarter earnings released today (May 8) saw earnings per share (EPS) rise 22% in the period to $0.60 compared with $0.49 for the same period in 2024. The change was largely due to higher revenues resulting from Ontario Energy Board (OEB)-approved transmission and distribution rates. It also benefitted from higher monthly peak demand.

Hydro One was created from the old Ontario Hydro in 2015 and has two main businesses: the transmission of electricity and the distribution of electricity to utilities throughout the province. Overall, it transmits 98% of Ontario’s electricity and serves 1.5 million customers. The province owns 47% of the common shares.

RBC Capital Markets analyst Maurice Choy said in a recent research note that Hydro One is well-positioned “as a stock of choice for investors seeking defensive exposure” in the utilities sector. He says in a recent research note it is a good option amidst volatility and ongoing recession rhetoric. He says its strategy and simplicity of its investment offering resonate with investors seeking a defensive  stock exposure.

Morningstar analyst Andrew Bischof expects Hydro One’s dividend to grow in line with earnings, maintaining the company’s 70% to 80% dividend payout ratio. He notes that Hydro One has among the strongest balance sheets in the sector, meaning it can fund its investments internally without borrowing.

 He also notes that utilities have limited direct exposure to tariffs because regulators typically allow utilities to pass along higher costs through customer bills. However, falling energy demand or regulatory pushback to utilities’ investment plans could slow earnings growth if conditions deteriorate.

 Both analysts see the stock as over-valued at its current price based on fundamentals. Investors are overlooking that for now.

Hydro One is a core holding for conservative investors, offering slow, steady growth and a rising dividend. It is insulated from global political and economic disorder, though this year may be different.

As always, the province’s 47% interest allows the government to play politics with the utility which Premier Doug Ford threatened to do this winter. While his threats to curtail energy exports proved to be bluster, he has added a 25% surcharge to US exports.

This is an updated version of an article that appeared in a recent issue of the Income Investor.  For information on how to reprint this article please view this page.