Morningstar | Hawaiian Electric Shareholders Finally Get a Dividend Increase
We are reaffirming our $35 per share fair value estimate after Hawaiian Electric Industries increased its common dividend, the first increase in over 20 years, and established 2019 EPS guidance of $1.85-$2.05, placing our estimate of $2.05 at the top of the range.The dividend increase, to an annualized rate of $1.28 versus the prior level of $1.24 per share, was not a huge surprise. We had previously speculated HEI’s board would be in position to increase the dividend due to the benefit of lower income taxes and the positive outlook for ASB. However, the 3.2% increase was more than the 1%-2% we had projected. HEI has targeted a 60%-65% payout ratio, but it is not clear to us if shareholders will see regular yearly increases.
HEI reported 2018 earnings of $1.85, slightly below our estimate and the consensus estimate of $1.87 per share. Although a little below our expectations, EPS were 12% higher than 2017 core EPS of $1.65 driven by the strong performance of American Savings Bank and the return to triennial rate reviews for Hawaiian’s three utilities.
Bank EPS guidance for 2019 of $0.79-$0.85 includes a one-time benefit of $0.03-$0.05 associated with ASB’s new campus. Removing that benefit puts our $0.76 per share estimate within the range.
However, utility and holding company guidance were modestly disappointing. Our 2019 utility estimate of $1.50 per share is above the newly established guidance range of $1.40-$1.47 per share, likely due in part to our rate base estimate below HEI management’s 2019 year-end forecast of $3.34 billion to $3.4 billion. Two large battery storage projects are taking longer for approval than we anticipated. Holding company and other is expected to be a drag of $0.20-$0.30 per share versus our estimate of $0.21 per share.
Hawaiian Electric Industries is a holding company with its subsidiaries principally engaged in electric utility, banking, and renewable/sustainable infrastructure investment businesses operating in the State of Hawaii. The company and its operating utility subsidiaries, Hawaii Electric Light Company, Inc.and Maui Electric Company, Limited are regulated electric public utilities that provide essential electric service to Hawaii's population through the operation of five separate grids that serve communities on the islands of Oahu, Hawaii, and Maui, Lanai and Molokai. The company also owns ASB Hawaii, Inc. and its subsidiary, American Savings Bank, F.S.B., a financial institution in the State of Hawaii.
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