Hawaiian Electric (HE) Dividend Suspended After Maui Wildfires

Hawaiian Electric Industries (HE) suspended its dividend because of damage caused by wildfires on Maui.

The utility needed to strengthen its financial position and redirect cash flow to rebuilding infrastructure and restoring power. In addition, it is faced with several lawsuits. The share price plummeted as investors exited this dividend stock. Moreover, it is not clear when the dividend will be restored.

Overview of Hawaiian Electric (HE)

Hawaiian Electric Industries is a utility founded in 1891. The company has both regulated and non-regulated operations. Its regulated utility is Hawaiian Electric, which serves 95% of the state’s 1.4 million inhabitants in Oahu, Maui, Hawaii, Kauai, and Molokai. The total generating capacity is roughly 2,168.1 megawatts. Next, the utility owns Pacific Current, which invests in sustainable clean energy, water, wastewater, and agriculture infrastructure projects. 

Lastly, Hawaiian Electric owns American Savings Bank, probably making it the only utility to do so. The bank has about $9.6 billion in assets. Most of its deposits are from retail customers, and 85% are F.D.I.C. insured or fully collateralized, one of the highest percentages in the regional banking industry. In addition, 82% of the loan portfolio is secured by Hawaiian real estate.

Before the fire-related challenges, the firm was the largest Hawaiian company by market capitalization.

Total revenue was $3,742 million in 2022 and $3,885 million in the past twelve months.

Dividend Suspension Announcement

Hawaiian Electric suspended its dividend on Thursday, August 24, 2023. The utility’s quarterly dividend was $0.36 per share before the announcement. The dividend is now $.00 per share. In a Securities and Exchange Commission (SEC) filing, the company stated,

“…the HEI Board of Directors has determined that, to further increase its cash position, it will suspend the quarterly cash dividend on the company’s common stock, beginning with the third quarter of 2023. We regret that this may impact members of our local communities who rely on this dividend as a source of income. Taking this action will allow us to continue to allocate cash to rebuilding and restoring power and ensure a strong future for the utility. HEI is contractually obligated to pay the cash dividend of $0.36 per share, payable September 8, 2023, that it declared on August 3, 2023, prior to the fires.”

Hawaiian Electric is obviously strengthening its balance sheet by preserving cash. The firm will save nearly $156 million annually by suspending its dividend. In addition, the holding company, Hawaiian Electric Industries, and the utility subsidiary have drawn on their revolving credit line. The firm needs to employ cash to rebuild and restore power.

Challenges

Hawaiian Electric’s most significant challenge is the Maui fire and extensive damage to Lahaina. As a result, the utility is also faced with lawsuits and credit downgrades.

Lawsuits

After the fires, Hawaiian Electric has been hit with several lawsuits. In the first category, cases have been filed by Maui County alleging power lines contributed to the fires destroying Lahaina. In the second category, the utility was sued by investors, claiming the stock price dropped because of inadequate wildfire procedures. According to the investment research Capstone LLC, the estimated liabilities are almost $4 billion.

However, Hawaiian Electric indicated in a press release that the first fire caused by power lines was extinguished. Afterward, a second fire started, but their power lines in West Maui were de-energized. The press release summarizes,

• A fire at 6:30 a.m. (the “Morning Fire”) appears to have been caused by power lines that fell in high winds.
• The Maui County Fire Department responded to this fire, reported it was “100% contained,” left the scene, and later declared it had been “extinguished.”
• At about 3 p.m., a time when all of Hawaiian Electric’s power lines in West Maui had been de-energized for more than six hours, a second fire (the “Afternoon Fire”) began in the same area.
• The cause of the devastating Afternoon Fire has not been determined.

Credit Downgrade

One consequence of the fires was a dividend suspension and credit downgrades by Moody’s, S&P Global, and Fitch. The three rating agencies lowered Hawaiian Electric’s long-term issuer default rating to junk status. Specifically, Moody’s lowered its rating to Baa1 from Baa3 for the senior unsecured notes. Similarly, S&P Global downgraded Hawaiian Electric to a B- and Fitch gave it a B.

S&P Global wrote,

“We view management’s decisions as prudently reducing the company’s near-term liquidity risks, but we also assess these actions as confirmation of the company’s likely inconsistent access to the capital markets, which we believe is fundamental to the successful operation of a utility business.”

Moody’s wrote,

“The downgrade is prompted by the heightened uncertainty facing the company that could result in significant financial liabilities if the utility is found to be at fault.”

Dividend Safety

Because the dividend was suspended, Hawaiian Electric’s earnings payout ratio and dividend-to-FCF ratio are meaningless metrics.

However, Hawaiian Electric’s dividend will likely remain suspended for the foreseeable future. The extent of the liabilities and the duration of the lawsuits are unknown. Furthermore, the time required to rebuild and restore the power infrastructure will probably take years.

Pacific Gas & Electric (PCG) is the closest analog to the current situation. This utility also omitted its dividend in response to wildfires. However it has not yet been reinstated since it was last paid in the third quarter of 2017. However, according to the second quarter presentation, PCG may announce a dividend in the third quarter of 2023, almost six years later.

Final Thoughts on the Hawaiian Electric (HE) Dividend Suspended

The wildfires caused Hawaiian Electric’s challenges. Long-term investors are sitting on losses and are no longer receiving a dividend. The utility must preserve its balance sheet and redirect cash flow to rebuilding infrastructure and restoring power. In addition, the outcome of the lawsuits is not known. Consequently, it may take a few years before the dividend is reinstated.

Related Articles on Dividend Power

• Paramount Global (PARA) Dividend Cut
• 3 Undervalued Dividend Utility Stocks