Looking for a great place to hide during the market turmoil? Utilities are a common port of relative safety, and investors could do a lot worse than Hydro One (Hydro One Stock Quote, Chart, News TSX:H), says portfolio manager Varun Anand, who thinks a solid ten per cent growth could come from
owning the stock.
It’s been a weird year in the markets for obvious reasons. Economies worldwide are still under the thumb of the coronavirus, whole industries like the airlines and cinema have been decimated and investors remain testy ahead of next week’s US elections. But as far
as market volatility goes, the flight towards perceived safety hasn’t followed the typical route where money moves into bonds and dependable, high-yield stocks in the utilities sector. Instead, investment has flocked to high growth names in the tech landscape where
valuations are often premised on inflated promises of future earnings and dividends are practically nonexistent.
The Canadian utilities space bears that out, with telecom companies like BCE and Rogers, still strong dividend earners, have nonetheless
seen their shares prices struggle in 2020 . The same goes for names like Brookfield Infrastructure and Fortis which while far from tanking this year have failed to recoup losses suffered earlier on.
But Hydro One has been a bit of an outlier on that front. The utility’s share price fell with the rest of the market in February and March but it’s had a good rally since, currently trading up a sparkling 17.5 per cent for the year and that’s aside from its dividend which now sits at about 3.4 per cent.
But even with those share price gains, Anand thinks Hydro One is a good place to park your money right now.
“Hydro One ran into a bit of a difficult situation regarding a big acquisition, similar to AltaGas, but they put that behind them now and I think in a year like 2020 where you want reliability and resilient earnings Hydro One has delivered,” says Anand of Starlight
Capital, who spoke on BNN Bloomberg on Tuesday.
“We’ve seen the multiple rerate a bit. Where the stock goes from here I wouldn’t say there’s significant upside. You could see a little bit more of a rerating but I think majority of your return is going to come from earnings growth in yield, which still gets you to
about ten per cent, so it’s definitely not lagging other sectors in the market where you’re not getting close to that.”
“In an environment where interest rates are at zero, Hydro One is paying you a decent dividend,” Anand said. “So, we do like the name, we just don’t see as much upside on the growth platform and pipeline relative to some of the other names in the space.”
Ahead of Hydro One’s third quarter 2020 results due on November 6, the company last reported in August where its second quarter generated adjusted earnings of $0.39 per share compared to an EPS of $0.26 per share a year earlier on revenues of $1.670 billion compared to $1.413 billion a year earlier.