Hydro One (TSE:H) Is Increasing Its Dividend To CA$0.3331

Hydro One Limited (TSE:H) will increase its dividend from last year's comparable payment on the 30th of June to CA$0.3331. This takes the annual payment to 2.6% of the current stock price, which unfortunately is below what the industry is paying.

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Hydro One's Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Hydro One was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to rise by 16.4% over the next year. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Hydro One

Hydro One Is Still Building Its Track Record

Hydro One's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The annual payment during the last 9 years was CA$0.84 in 2016, and the most recent fiscal year payment was CA$1.33. This works out to be a compound annual growth rate (CAGR) of approximately 5.3% a year over that time. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Hydro One to be a consistent dividend paying stock.

Hydro One Could Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Hydro One has seen EPS rising for the last five years, at 7.9% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Hydro One's payments are rock solid. While Hydro One is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Hydro One has 2 warning signs (and 1 which is significant) we think you should know about. Is Hydro One not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.