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Introduction & Market Context
Hydro One Limited (TSX:H) has positioned itself as a unique low-risk investment opportunity in the regulated utility space, according to its post-Q1 2025 investor presentation. The company operates as one of North America’s largest electric utilities, with a pure-play focus on electric power transmission and local distribution in Ontario, Canada’s economic powerhouse that contributes 40% to the national economy.
The utility’s investment case is strengthened by Canada’s position as the fastest-growing G7 nation in population and second in GDP growth, with electricity demand projected to increase 120%-135% by 2050 to meet net-zero targets.
As shown in the following investment overview, Hydro One combines stable regulated cash flows with predictable growth:
Q1 2025 Performance Highlights
Hydro One delivered impressive financial results in the first quarter of 2025, demonstrating strong momentum across all key metrics. The company reported consolidated revenue of $2,408 million, representing an 11.2% increase from Q1 2024. Net income rose to $358 million, up 22.2% year-over-year, while basic earnings per share reached $0.60, a 22.4% improvement from the same period last year.
Capital investments also showed healthy growth, reaching $735 million in Q1 2025, a 9.2% increase compared to Q1 2024. These investments support the company’s strategy of expanding its rate base to drive future earnings growth.
The financial summary below highlights Hydro One’s strong Q1 2025 performance compared to the previous year:
Growth Strategy and Capital Plan
Hydro One’s growth strategy centers on expanding its rate base through strategic capital investments. The company has outlined an $11.8 billion capital plan for the 2023-2027 period, which is expected to drive approximately 6% compound annual growth rate (CAGR) in its rate base. This expansion is projected to increase the rate base from $23.6 billion in 2022 to $31.8 billion by 2027.
The company’s organic growth is underpinned by the need to replace aging infrastructure, with strong customer support for these initiatives. Notably, Hydro One does not anticipate requiring equity issuance to fund this growth, highlighting its financial strength.
The following chart illustrates Hydro One’s historical and projected rate base growth:
The company has also demonstrated a strong focus on operational efficiency, generating productivity savings of $149.5 million in 2024 alone, comprising $66.3 million in operations, maintenance and administration (OM&A) and $83.2 million in capital. These efficiencies were achieved through strategic sourcing initiatives, outsourcing equipment testing and inspections, pole refurbishments, and optimized facilities management.
Recent Acquisitions
Hydro One continues to execute its growth strategy through strategic acquisitions. On March 4, 2025, the company completed the acquisition of the East-West Tie Transmission Line for $261 million in cash. This 450-kilometer, 230 kV double-circuit transmission line runs from Wawa Transformer Station to Lakehead Transformer Station. The purchase price represents a rate base multiple of 1.2x on the Ontario Energy Board (OEB) approved rate base of $880 million (on a 100% basis). The acquisition is expected to be EPS accretive in 2025.
The East-West Tie acquisition details are illustrated below:
Additionally, Hydro One has been actively consolidating Local Distribution Companies (LDCs) in Ontario, having acquired more than 90 LDCs since 1999. Recent acquisitions include Chapleau Hydro (August 2024), Orillia Power Distribution Corporation (September 2020), and Peterborough Distribution Inc. (August 2020). As the largest LDC in Ontario, Hydro One continues to engage with communities, municipalities, and LDCs for potential future consolidations.
Financial Outlook and Dividend Growth
Hydro One has provided clear guidance on its financial trajectory through 2027. Starting from a normalized 2022 EPS of $1.61 (adjusted for one-time items), the company projects 2027 EPS to range between $2.15 and $2.37, representing a 6-8% annual growth rate.
This growth outlook is illustrated in the following guidance range:
Shareholders continue to benefit from Hydro One’s commitment to dividend growth. The company declared a quarterly dividend of $0.3331 per common share ($1.3324 annualized), with a target payout ratio of 70-80% of net income. This represents a yield of approximately 2.8% based on recent share prices.
The company’s dividend has shown consistent growth since its IPO, as demonstrated in the following chart:
Balance Sheet Strength and Sustainability Initiatives
Hydro One maintains a strong balance sheet with significant available liquidity of $3,050 million in undrawn credit facilities and strong investment-grade debt ratings from major agencies. The company’s weighted-average coupon rate for long-term debt stands at 4.2%, with a weighted-average term of 13.7 years. Its net debt to capitalization ratio is 59.0%, with annualized funds from operations (FFO) to net debt at 13.4%.
The company’s financial strength is supported by a constructive regulatory environment, with the Ontario Energy Board (OEB) providing a deemed debt/equity ratio of 60%/40% and an allowed return on equity (ROE) of 9.36% through 2027 for both transmission and distribution businesses.
As shown in the following slide, Hydro One has made significant progress on its sustainability commitments:
The company has achieved approximately 36% female representation among executives (VP and above) and 45% on its board, with goals to reach 50% female executives and board representation by 2025. Additionally, Hydro One has converted about 34% of its fleet of sedans/SUVs to electric vehicles (EVs) or hybrids, with a target of 100% conversion by 2030. The company has also reduced its Scope 1 greenhouse gas emissions by approximately 24% compared to its 2018 baseline, working toward its net-zero by 2050 goal with a 30% reduction target by 2030.
With a current stock price of $53.48 (as of May 7, 2025) and a market capitalization of approximately $29 billion, Hydro One continues to offer investors exposure to a stable, growing utility with strong fundamentals and clear visibility on future earnings growth.
Full presentation:
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