When stock markets are falling, as they have been doing so far in 2022, then utility stocks prove to be popular with investors.
That’s because utilities are deemed relatively safe compared to other sectors of the stock market. One of the big reasons for this is that their earnings are predictable – both in good economic times and bad.
Utility stocks also tend to pay reliable dividends to shareholders on a regular basis.
In the Hong Kong stock market, there are two large utility stocks that are popular with dividend investors; CLP Holdings (HKEX: 2) and Power Assets Holdings Ltd (HKEX: 6).
Here’s what dividend investors ought to know about these two utility companies listed on the Hong Kong Stock Exchange before they consider investing in them.
Investors Guide To Understanding How The Hong Kong Stock Connect Scheme Works
CLP – A China-focused power company
CLP is the acronym for “China Light and Power”, giving investors a sense of where the company’s business is geared towards.
Established in the early 1900s, CLP was originally a power company that provided power to residents in the Kowloon and New Territories parts of Hong Kong.
Today, CLP is a diversified power company that has power-generating assets in Hong Kong, Mainland China, Australia, India, Thailand, and Taiwan.
However, as investors can see, in the most recent first half of 2022, most of CLP’s operating earnings still come from Hong Kong. In terms of its future growth, though, the company is geared towards Mainland China.
Source: CLP Holdings H1 2022 interim results presentation
That’s due to the sheer size of the Mainland Chinese market. While its Hong Kong assets generate 8.27 gigawatts (GW) of power, its Mainland China generation and storage capacity is 8.7 GW.
It’s currently present in 16 provinces, autonomous regions and municipalities within Mainland China.
CLP has a wide variety of power-generating facilities, including assets in wind, hydro, solar, nuclear, natural gas, coal, waste-to-energy, and energy storage, among others.
CLP’s H1 2022 operating earnings were severely negatively impacted by lower realised prices pursuant to progressive hedging and negative gross margins from energy derivative contract settlement at its EnergyAustralia unit.
That resulted in sizeable fair value adjustments. Excluding that, operating earnings in H1 2022 would have been down 25.4% to HK$4.1 billion (US$523 million).
Energy Transition & Dividend Payer
CLP, like many other utility companies out there, has an ambitious plan for its portfolio to be carbon “Net Zero” by 2050.
It has pledged to go coal-free by 2040 but the company still has some ways to go as it has interests in 13 coal-fired power stations within its portfolio.
CLP has already launched initiatives in certain growth areas that focus on the energy transition and electrification. These include distributed energy, battery-as-a-service and extending its own capabilities to the Greater Bay Area of China.
One interesting fact about CLP is that it pays a dividend four times a year – a rarity among Hong Kong-listed companies.
In FY2021, it paid a dividend per share (DPS) of HK$3.10. However, given it’s a utility and its stable business, it hasn’t grown its dividend at a fast pace. CLP paid a DPS of HK$2.52 in FY2011, meaning it has grown its dividend at a compound annual growth rate (CAGR) of 2.1% between 2011-2021.
Based on its current share price of HK$57.15, CLP shares are giving investors a dividend yield of 5.4%.
Power Assets – Diverse Asset Base
Power Assets is another big utility stock in Hong Kong. The company has a primary focus on Hong Kong but also has power assets or investments in the UK, Australia, New Zealand, Mainland China, the US, Canada, Thailand, and the Netherlands.
Power Assets actually owns 33.37% of HK Electric Investments Ltd (HKEX: 2638), which is the other main power provider in Hong Kong (besides CLP).
Furthermore, Power Assets’ parent company is Cheung Kong (CK) Infrastructure Holdings Ltd (HKEX: 1038), which owns 35.96% of the power company.
In contrast to CLP, Power Assets has been accumulating power-generating assets in Western economies, such as the UK, Australia, the US, and Canada.
Holding Company For Power-Producing Assets
Essentially, what investors are getting with Power Assets is a holding company for a host of power-generating interests.
That’s because the company – as its name suggests – is focused on accumulating interests or stakes in power assets globally.
As you can see from its unaudited H1 2022 results (for the six months ending 30 June 2022) below, Power Assets actually records very little actual revenue (or operating profit) in comparison to its overall profit attributable to shareholders.
Source: Power Assets Holdings H1 2022 interim results report
This allows Power Assets to function more as a power-focused conglomerate that provides shareholders with regular and predictable income from the real assets that it owns.
Power Assets Dividend History
As with all dividend stocks, investors should want to know a company’s track record in paying – as well as growing – its dividend.
Power Assets spun off HK Electric in 2014 via an IPO and ended up paying shareholders two special dividends in 2017.
However, if we exclude those special dividends, over the past decade (2011-2021) Power Assets has grown its dividend at a compound annual growth rate (CAGR) of 2.9%.
At its current share price of HK$39, Power Assets shares offer investors a dividend yield of 7.2%.
Understanding Utility Stocks In Hong Kong
Overall, utility stocks in Hong Kong tend to be viewed as conservative investments by investors – much like anywhere else in the world.
Given both CLP Holdings and Power Assets are domiciled in Hong Kong, there is a zero dividend withholding tax on any dividend payments Singapore investors receive.
While these two utility stocks offer solid yields and stable businesses, it should finally be noted that neither company grows its dividend at a fast rate.
The post Dividend Investing With Hong Kong’s Largest Utility Stocks: CLP Holdings (HKEX: 2) and Power Assets Holdings (HKEX: 6) appeared first on DollarsAndSense.sg.
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