Hydro One (H.TO)

Holds Fortis and Northland Power instead. Hydro One's dividend is safe and will increase. Yes, they are expanding in the States, but they are beholden to the Ontario regulator. So one bad call from this regulator and they're in trouble. Stick with it if you own it. They're challenged like all utilities due to interest rates rising.

Debt levels are high and you don’t know that they are doing with acquisitions. It is hard to argue about the safety of the dividend. But it is not a growth stock in the next number of years.

Has its challenges in Ontario. Made an acquisition in the US which should help, but still has a few challenges. He is on the sidelines for this one. Prefers companies that have diverse geographical regulators. Dividend yield of 3.9%.

He is pretty positive on this. You see a lot of trend of Canadian companies going down to the US to buy assets. It is a very long cycle, which is why the receipts are a good thing in terms of if it doesn’t happen. The conversion will result in dilution, but you are getting paid to wait. Thinks it will work out well.

It is stodgy, and is worth holding in this quiet market. Did a US acquisition.

He has big positions in other utilities. It has done well coming out of the chute. They were challenged in their growth, but now they have made an acquisition.

This is a company where the government sets its rates, takes its cash flow. The flexibility that management has within Ontario is limited. You have to ask yourself, are you really buying equity or just buying a participation with a right to a dividend as it goes along. Making a US acquisition gives them an outlook for growth, and hopefully earn a better return on equities.

This closed at $22.70. He has a model price of $24.01, a 5% upside. More importantly, it pays a 3.88% dividend. It would be nice if this pulled back to $21.38 which would give it added support. 3.58% dividend yield.

The utility sector is pretty healthy in Canada. This is not his favourite name within the group. Trades at a higher valuation than others. He prefers the growth rate of Algonquin (AQN-T). His #2 choice would be Fortis (FTS-T).

He would be very cautious until we get more detail on what the Ontario government’s cut in Hydro bills will have in the way of effecting this stock?

A steady Eddie stock. You aren’t going to make a fortune, but you can sleep well at night. With the potential of further de-regulations coming, some of their assets could be operated more efficiently. There are some opportunities for them to consolidate within the market, but it remains to be seen. The other large Canadian utilities are buying assets in the US, so it will be interesting to see how this one augments their growth rate longer-term. There are other investments in the space that he likes better. 3.5% dividend yield.

You are supposed to own this, but… it is such a bad company and is in the process of being fixed, that you cannot get a sense of what they are doing. Also, the government can change the terms of what they can do. Around $20 it might be so cheap you could ride out volatility. The electricity market is so dysfunctional that you should not be in it. Wait until it completely crushes the economy and has to be completely restructured. Labour costs are incredibly high, very inefficient.

(Market Call Minute) Earnings have been flat since the initial issue and the stock has been backing away, but it has not dropped to a value where he says it is a buy.

In the near term, this is going to be driven by interest rates. It had a great rally because interest rates were going to be lower for longer, and it has a very stable revenue stream which dividend investors like. All utility stocks have fallen, and the question is, have they fallen too far. He finds this doesn’t have as high yield as he can find elsewhere. It is hard to see a lot of growth on a go forward basis.

From the point of view of safety and dividend, this company fits that bill very well. It is not cheap, but none of the utility stocks are. In a rising interest rate environment, they are going to be a little bit more at risk, which probably accounts for some of the weakness in the stock. It has an effective monopoly.