Is it a good company at a reasonable price? The company has a reasonable dividend and some growth to the dividend as a Utility company. It has not had much growth but most is over background inflation of 3%. At this point, it looks like the stock price is in the expensive range.
I do not own this stock of Hydro One Ltd (TSX-H, OTC-HRNNF). It is a utility stock and has been recommended by various persons. It is on the Money Sense list with a C. Rating. It appeared in the Stable Dividend Portfolio when Norman Rothery originally wrote about it in December 21, 2022.
When I was updating my spreadsheet, I noticed that this company is still partly owned by the government, but shareholders have done well earning Total Returns of 18.7% and 10% per year over the past 5 and 9 years.
In the chart below, I am showing 5 and 9 year total growth and per year growth in columns 3 and 4. Column 5 shows growth expected over 12 months to the first quarter in 2024 and expected growth over the next year. Basically, this chart shows slow growth. The growth is only high for Net Income for 5 years because of a bad year 5 years ago.
| Year | Item | Tot. Gwth | Per Year | Gwth | Coverage |
|---|---|---|---|---|---|
| 5 | Revenue Growth | 27.54% | 4.99% | 0.04% | <-12 mths |
| 5 | AEPS Growth | 34.07% | 6.04% | 1.10% | <-12 mths |
| 5 | Net Income Growth | 1319.10% | 69.98% | -0.95% | <-12 mths |
| 5 | Cash Flow Growth | 43.49% | 7.49% | ||
| 5 | Dividend Growth | 28.44% | 5.13% | 1.44% | <-12 mths |
| 5 | Stock Price Growth | 98.20% | 14.66% | -0.53% | <-12 mths |
| 9 | Revenue Growth | 19.79% | 2.03% | 3.71% | <-this year |
| 9 | AEPS Growth | 47.15% | 4.39% | 4.97% | <-this year |
| 9 | Net Income Growth | 48.43% | 4.49% | 5.07% | <-this year |
| 9 | Cash Flow Growth | 79.94% | 6.74% | 3.91% | <-this year |
| 7 | Dividend Growth | 20.49% | 2.70% | 6.69% | <-this year |
| 9 | Stock Price Growth | 83.63% | 6.99% | -0.53% | <-this year |
If you had invested in this company in December 2015, for $1,061.10 you would have bought 45 shares at $22.29 per share. In December 2023, after 8 years you would have received $361.49 in dividends. The stock would be worth $1,786.50. Your total return would have been $2,147.99. This would be a total return of 11.01% per year with 7.48% from capital gain and 3.52% from dividends.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $22.29 | $1,061.10 | 45 | 8 | $361.49 | $1,786.50 | $2,147.99 |
The current dividend yield is moderate with dividend growth low. The dividend yield is moderate (2% to 4% ranges) at 3.00%. The 5 and 7 year median dividend yields are also moderate at 3.53% and 3.82%. The dividend increases are low (below 8% per year) with increases of 5% per year over the past 5 years. The last increase was in 2023 and it was for 6%.
The Dividend Payout Ratios (DPR) varies, but concentration on FFO, AEPS and CFPS they are fine, but a little high on some measures. The DPR for 2023 for Earnings per Share (EPS) is high at 65% with 5 year coverage at 56%. The DPR for 2023 for Adjusted Funds from Operations (AFFO) is too high at 113% with 3 year coverage at 54%. The DPR for 2023 for Funds from Operations (FFO) is good at 33% with 5 year coverage at 33%.
The DPR for 2023 for Adjusted Earnings per Share (AEPS) is good at 65% with 5 year coverage at 64%. The DPR for 2023 for Cash Flow per Share (CFPS) is good at 28% with 5 year coverage at 28%. The DPR for 2023 for Free Cash Flow 1 (FCF) is negative with 5 year coverage at 888%. The DPR for 2023 for Free Cash Flow 2 (FCF) is too high at 10445with 5 year coverage at 321%. The FCF DPRs are not good, but they vary greatly and this is a reason I am inclined to ignore them.
| Item | Cur | 5 Years |
|---|---|---|
| EPS | 64.57% | 56.08% |
| AFFO | 113.48% | 53.98% |
| FFO | 32.65% | 32.82% |
| AEPS | 64.57% | 64.37% |
| CFPS | 27.87% | 28.83% |
| FCF 1 | -1093.75% | 887.78% |
| FCF 2 | 1044.78% | 321.21% |
Debt Ratios are shows that this utility has a lot of debt and a low Liquidity ratio. The Long Term Debt/Market Cap Ratio for 2023 is fine at 0.62. The Liquidity Ratio for 2023 is much too low at 0.50. If you added in Cash Flow after dividends, the ratios are still too low at 1.06 and currently at 1.08. If you add back the current portion of the debt, the ratios are still too low at 1.33. The Debt Ratio for 2023 is good at 1.56. The Leverage and Debt/Equity Ratios for 2023 are fine at 2.81 and 1.81.
| Type | Year End | Ratio Curr |
|---|---|---|
| Lg Term R | 0.62 | 0.62 |
| Intang/GW | 0.04 | 0.04 |
| Liquidity | 0.50 | 0.50 |
| Liq. + CF | 1.06 | 1.08 |
| Liq. + CF+D | 1.33 | 1.36 |
| Debt Ratio | 1.56 | 1.56 |
| Leverage | 2.81 | 2.81 |
| D/E Ratio | 1.80 | 1.80 |
The Total Return per year is shown below for years of 5 to 9 to the end of 2023. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2018 | 5 | 5.13% | 18.72% | 14.66% | 4.06% |
| 2015 | 9 | 2.70% | 10.00% | 6.99% | 3.02% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 16.60, 18.52 and 20.44. The corresponding 10 year and historical ratios are the same at 16.60, 18.52 and 20.44. The current P/E Ratio is 20.75 based on a stock price of $39.49 and EPS estimate for 2024 of $1.90. This ratio is above the high ratio for the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive.
I also have Adjusted Earnings per Share (AEPS) data. The 5-year low, median, and high median Price/Adjusted Earnings per Share Ratios are 16.60, 18.52 and 20.44. The corresponding 10 year and historical ratios are 17.13, 18.88 and 20.25. The current P/AEPS Ratio is 20.78 based on a stock price of $39.49 and AEPS estimate for 2024 of $1.90. The current ratio is above the high ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive.
I also have Funds from Operations (FFO) data. The 5-year low, median, and high median Price/ Funds from Operations Ratios are 7.85, 8.77 and 9.93. The corresponding 10 year and historical ratios are 7.86, 8.80 and 9.81. The current P/FFO Ratio is 11.03 based on a stock price of $39.49 and FFO for the last 12 months of $3.58. The current ratio is above the high ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive.
I get a Graham Price of $28.89. The 10-year low, median, and high median Price/Graham Price Ratios are 1.04, 1.12 and 1.22. The current P/GP Ratio is 1.37 based on a stock price of $39.49. This ratio is higher than the high ratio for the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive.
I get a 10-year median Price/Book Value per Share Ratio of 1.46. The current ratio is 2.02 based on a Book Value of $11,700M, Book Value per Share of $19.53 and a stock price of $39.49. The current ratio is 38% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. I also have Book Value per Share estimate for 2024 of $20.10. This estimate implies a ratio of 1.96 based on a stock price of $39.49 and Book Value of $12,014M. This ratio is 34% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get a 10-year median Price/Cash Flow per Share Ratio of 8.56. The current P/CF Ratio is 10.07 based on Cash Flow per Share estimate for 2024 of $3.92, Cash Flow of $2,348M, and a stock price of $39.49. The current ratio is 23% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get an historical median dividend yield of 3.82% based on dividends of $1.1856 and a stock price of $39.49. The current dividend yield is 21% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median dividend yield of 3.82% based on dividends of $1.1856 and a stock price of $39.49. The current dividend yield is 21% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
The 10-year median Price/Sales (Revenue) Ratio is 2.17. The current P/S Ratio is 2.91 based on Revenue estimate for 2024 of $8,135M, Revenue per Share of $13.58 and a stock price of $39.49. the current ratio is 34% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
Results of stock price testing is that the stock price is probably expensive. The dividend yield tests show the stock price as expensive. This is confirmed by the P/S Ratio test. In fact, all the tests are showing the stock price as expensive.
When I look at analysts’ recommendations, I find Strong Buy (1), Buy (1), Hold (10) and Underperform (1). The 12 month stock price consensus is $40.08 with a high of $42.00 and low of $35.00. The consensus price of $40.08 implies a total return of 4.50% with 1.50% from capital gains and 3.00% from dividends.
There are only recommendations from 2023 on Stock Chase. Last year, there were as many Holds and Do Not Buy as Buys, and most Buys were a Weak Buy. Stock Chase gives this stock 4 stars out of 5. It is not on the MoneySense list, but on my other dividend stock lists. Amy Legate-Wolfe on Motley Fool thinks this is a good dividend growth stock to buy. Adam Othman on Motley thinks this is a reliable utility stock to buy. The company put out a press release via Newswire about their fourth quarter of 2023 results.
Simply Wall Street on Yahoo Finance talk about insider buying. Simply Wall Street gives this stock one and one half-star out of 5. They have two warnings of debt is not well covered by operating cash flow; and dividend of 3% is not well covered by cash flows.
Hydro One operates regulated transmission and distribution assets in Ontario. The area's largest electricity provider serves nearly 1.5 million customers. The province of Ontario holds an approximate 47% common equity stake. Its web site is here Hydro One Ltd.
The last stock I wrote about was about was AltaGas Ltd (TSX-ALA, OTC-ATGFF) ... learn more. The next stock I will write about will be BCE Inc (TSX-BCE, NYSE-BCE) ... learn more on Monday, April 1, 2024 around 5 pm.
This blog is meant for educational purposes only and is not to provide investment advice. I am not a licensed professional investment advisor. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
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