Meridian Energy Limited

Meridian Energy is a stock that demands a clear understanding of what you are buying before committing capital. It is not a growth story in the conventional sense, and it is not a technology company. It is a large, government-majority-owned renewable energy utility whose financial performance is materially influenced by the weather – specifically, by how much rain falls on the Southern Alps of New Zealand. In years of good hydrology, it generates strong cash flows and pays attractive dividends. In drought years, as FY2025 demonstrated brutally, earnings can collapse with little warning. That weather dependency is both the primary risk and, for patient investors, the primary opportunity. Meridian’s underlying asset base – its chain of hydro dams on the Waitaki River and Manapouri, its wind farms, and its growing renewable pipeline – is genuinely world class. These are long-lived, low-cost generation assets that cannot be replicated. Their value does not diminish with a drought year; it is simply temporarily obscured. Investors who understand this and can tolerate earnings volatility are, in effect, buying a call option on normalised New Zealand hydrology. The longer-term structural backdrop is genuinely favourable. New Zealand has committed to ambitious electrification targets as part of its climate policy, and the country’s electricity demand is expected to grow materially as transport, industrial heat, and heating systems electrify. As the country’s largest renewable generator with a consented pipeline of new projects, Meridian is structurally well placed to benefit from that demand growth. The company’s record retail connections – up 5% in FY2025 despite a difficult year – suggest the customer proposition under its Meridian and Powershop brands is competitive. The dividend yield, at current prices, is reasonably attractive for income investors, and the New Zealand Government’s majority ownership provides a degree of implicit stability. The principal risk beyond hydrology is regulatory – as a large utility in a small market, Meridian operates under close government scrutiny, and any moves to cap electricity prices or restructure the market could affect its profitability. For investors comfortable with that combination of risks, Meridian represents a patient, income-oriented holding with credible long-term growth optionality.