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Hydro One (TSE:H) Has Announced That It Will Be Increasing Its Dividend To CA$0.2964

Hydro One Limited's (TSE:H) dividend will be increasing from last year's payment of the same period to CA$0.2964 on 30th of June. This takes the annual payment to 3.1% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Hydro One

Hydro One's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last dividend, Hydro One is earning enough to cover the payment, but then it makes up 1,927% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

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The next year is set to see EPS grow by 22.6%. If the dividend continues on this path, the payout ratio could be 33% by next year, which we think can be pretty sustainable going forward.

historic-dividend
historic-dividend

Hydro One Doesn't Have A Long Payment History

It is great to see that Hydro One has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of CA$0.84 in 2016 to the most recent total annual payment of CA$1.19. This works out to be a compound annual growth rate (CAGR) of approximately 5.0% a year over that time. Hydro One has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

We Could See Hydro One's Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Hydro One has been growing its earnings per share at 7.3% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Hydro One you should be aware of, and 1 of them is potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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