A Yield to Caution

Article Excerpt

HYDRO ONE LTD. $22 (Toronto symbol H; Shares outstanding: 595.4 million; Market cap: $13.1 billion; Dividend yield: 4.0%; www.hydroone.com) is an electricity transmission and distribution utility, 47.4% owned by the province of Ontario. Hydro One doesn’t generate electricity. Instead, it owns and operates 96% of Ontario’s electricity-transmission capacity. It then distributes that power to 1.4 million customers through its 29,000 kilometres of power lines. The company pays a quarterly dividend of $0.22 a share for a high 4.0% yield. Despite its stability as a regulated utility and that high yield, Hydro One faces a number of risks. They include its high-cost unionized workforce and the possibility of political interference by its major shareholder, the Ontario government. In particular, it’s uncertain how independent Hydro One is from the government and how the government might use its influence over the company. Recently, however, Hydro One has bid $6.7 billion for U.S. utility Avista Corp. If it succeeds in winning a deal, the purchase will lower the company’s…