Wednesday, July 15, 2015

How to Invest in Water – Water Utilities

The next hot investment is water. Water, freshwater to be particular, will have a profound impact on human civilization in the coming decades. Naturally, the savvy and prudent investors will have some exposure to water in their portfolio, as the value of water rises. In this series of posts, I will cover some obvious and not-so-obvious ways to invest in water. This the first post of the series and we look at the most obvious of the investment vehicles available for water, i.e.,  water utilities.

The advantage of investing via utilities is that the companies provide a crucial service and have been around for over a 100 years, having stood the test the time. Lucky for income investors, the water utility companies also pay a decent dividend and all companies mentioned here are proven dividend growers.

How to Invest in Water

The water utilities industry is fairly small, with just a few players, each covering a small region of the country. The major players are summarized below. Only companies paying dividends are profiled in this article. In addition, there might be other companies that operate in utilities, but have water as just one segment of the business, instead of the main focus. This list looks are pure-play water utilities.
Company
Ticker Market Cap # of Customers Yield
American Water Works
AWK $9.05B 15M 2.73%
Aqua America
WTR $4.49B 3M 2.62%
American States Water
AWR $.143B 258K+(1) 2.27%
California Water Services
CWT $1.12B 506K 2.86%
SJW Corp
SJW $620M 265K 2.51%
Connecticut Water Service
CTWS $376M 123K 3.02%
Middlesex Water Co
MSEX $367M 60K 3.37%
York Water
YORW $284M 65K 2.71%
Artesian Resources
ARTNA $190M 80K 4.07%
(1)AWR serves a number of military facilities and does not disclose the number of end users. The number 258K represents the non-military customers.

The following charts provide an overview comparing the water utilities industry

American Water Works Company Inc (AWK)

American Water Works (AWK) is the largest publicly traded water company serving approx 15 million people in U.S. and Canada. In serving the 15M customers, the company boasts 48,000 miles of water pipelines serving 1,600 communities and 3.2M regulated customers.

American Water Works is a Dividend Challenger, having raised its dividends for 8 consecutive years. The dividend growth rates for 1, 3, and 5-yr periods are 11.0%, 10.4%, and 8.1%, respectively. The company has a Chowder Rule number of 10.6. Current payout ratio stands at a manageable 44.1%.

Aqua America Inc (WTR)

Aqua America (WTR) is the second largest water utility company in North America serving eight states serving approximately 3 million customers. The company intends to grow through acquisitions, and has made approximately 300 acquisitions and growth ventures since 1995. The company enjoys stability due to the nature of the industry and intends to look at unregulated and acquisition opportunities for growth.

Aqua America is a Dividend Contender, having raised its dividends for 23 consecutive years. The dividend growth rates for 1, 3, 5 and 10-yr periods are 8.6%, 7.9%, 7.6%, and 8.0%, respectively. The company has a Chowder Rule number of 10.0. Current payout ratio stands at a manageable 48.3%.

American States Water Company (AWR)

American States Water Co. (AWR) is the parent company of Golden State Water Co. (GSWC) and American States Utility Services, Inc. (ASUS) and its subsidiaries. It is the third largest water utility company in North America and has its main focus on military contracts for long durations (usually 50 years) and looks at unregulated markets for growth opportunities. The combination makes for stability and the company has demonstrated it with the long history of dividend payments and dividend growth.

American States Water is a Dividend Champion, having raised its dividends for 60 consecutive years. The dividend growth rates for 1, 3, 5 and 10-yr periods are 9.2%, 14.7%, 10.4%, and 6.5%, respectively. The company boasts a Chowder Rule number of 12.7. Current payout ratio stands at a manageable 52.4%.

California Water Service Group (CWT)

 California Water Service Group, through its subsidiaries, provides water utility and other related services in California, Washington, New Mexico, and Hawaii. It provides its services to approximately 477,900 customers in 83 California communities; 4,300 water and wastewater customers on the islands of Maui and Hawaii; 16,300 customers in Washington; and 7,600 water and wastewater customers in New Mexico.

California Water Service is a Dividend Champion, having raised its dividends for 48 consecutive years. The dividend growth rates for 1, 3, 5 and 10-yr periods are 1.6%, 1.9%, 2.0%, and 1.4%, respectively. The company has a Chowder Rule number of 4.8. Current payout ratio stands at a manageable 49.2%.

SJW Corp (SJW)

 SJW Corp., through its subsidiaries, operates as a water utility company in the United States. The company operates through two segments, Water Utility Services and Real Estate Services. The company offers water service to approximately 229,000 connections that serve customers in portions of the cities of San Jose and Cupertino and in the cities of Campbell, Monte Sereno, Saratoga, and the Town of Los Gatos; and adjacent unincorporated territories in Santa Clara County, California. It also provides water service to approximately 12,000 connections, which serve approximately 36,000 people in a service area comprising approximately 240 square miles in the region between San Antonio and Austin, Texas.

SJW is a Dividend Champion, having raised its dividends for 48 consecutive years. The dividend growth rates for 1, 3, 5 and 10-yr periods are 2.7%, 2.8%, 2.6%, and 3.9%, respectively. The company has a Chowder Rule number of 5.3. Current payout ratio stands at a manageable 27.8%.

Connecticut Water Service Inc (CTWS)

 Connecticut Water Service, Inc., through its subsidiaries, operates as a regulated water company. It operates through three segments: Water Activities, Real Estate Transactions, and Services and Rentals. As of December 31, 2014, the company supplied water to 123,071 customers in Connecticut and Maine, the United States.

Connecticut Water Service is a Dividend Champion, having raised its dividends for 45 consecutive years. The dividend growth rates for 1, 3, 5 and 10-yr periods are 3.1%, 2.4%, 2.3%, and 1.9%, respectively. The company has a Chowder Rule number of 5.2. Current payout ratio stands at a manageable 49.1%.

Middlesex Water Co (MSEX)

 Middlesex Water Company, through its subsidiaries, provides regulated and unregulated water, and wastewater utility services. The company operates in two segments, Regulated and Non-Regulated. The Regulated segment collects, treats, and distributes water on a retail and wholesale basis to residential, commercial, industrial, and fire protection customers in parts of New Jersey, Delaware, and Pennsylvania. This segment also operates regulated wastewater systems in New Jersey and Delaware. The Non-Regulated segment provides non-regulated contract services for the operation and maintenance of municipal and private water and wastewater systems in New Jersey and Delaware.

Middlesex Water Co is a Dividend Champion, having raised its dividends for 42 consecutive years. The dividend growth rates for 1, 3, 5 and 10-yr periods are 1.3%, 1.3%, 1.4%, and 1.4%, respectively. The company has a Chowder Rule number of 4.7. Current payout ratio stands at a manageable 56.3%.

The York Water Company (YORW)

 The York Water Company impounds, purifies, and distributes drinking water. It serves customers in 39 municipalities within York County and 9 municipalities within Adams County, Pennsylvania. The company serves various customers in fixtures and furniture, electrical machinery, food products, paper, ordnance units, textile products, injectable drug delivery systems, air conditioning systems, laundry detergent, barbells, and motorcycles industries.

York Water is a Dividend Contender, having raised its dividends for 18 consecutive years. The dividend growth rates for 1, 3, 5 and 10-yr periods are 3.5%, 3.0%, 2.6%, and 4.0%, respectively. The company has a Chowder Rule number of 5.0. Current payout ratio stands at a manageable 62.9%.

A special note on York Water Co – the company has the longest dividend paying history in corporate America. The company started paying dividends in 1816 and boasts an amazing 199-year streak!

Artesian Resources Corp (ARTNA)

Artesian Resources Corporation, through its subsidiaries, provides water, wastewater, and other services on the Delmarva Peninsula. It distributes and sells water to residential, commercial, industrial, municipal, and utility customers in the states of Delaware, Maryland, and Pennsylvania. As of December 31, 2014, the company served approximately 80,600 metered water customers through 1,201 miles of transmission and distribution mains.

Artesian Resources is a Dividend Contender, having raised its dividends for 18 consecutive years. The dividend growth rates for 1, 3, 5 and 10-yr periods are 3.1%, 3.6%, 3.3%, and 4.4%, respectively. The company has a Chowder Rule number of 7.3. Current payout ratio stands at a manageable 76.9%.

Summary

Water investment can be a lucrative path going forward for investors. The resource is essential for human survival – and water utilities are the easiest and most straight-forward way to invest in water. There are 9 pure play water utility companies and all are proven dividend growers. The following list provides a summary with data taken from Dave Fish’s CCC list.
(Source: Data from Dave Fish’s CCC list)

This article was written by Roadmap2Retire. If you enjoyed this article, please consider subscribing to my feed at Roadmap2Retire.com/feed

3 comments:

  1. Greetings from Finland! I have invested in utilities before but they've all been electric utilities. Just before seeing this great post I've opened a position in Aqua America (WTR). I'm pretty sure they'll get to the next level of 25 consecutive years of dividend increases.

    ReplyDelete
    Replies
    1. Water utilities provide a great opportunity for the future...and Aqua America is one of the best companies in the space. Congrats on the investment. Glad you liked this post.

      Best wishes
      R2R

      Delete
  2. I owned MSEX for a few years with a YOC of 4%. Had bought it for the reasons you cited. Water utilities are steady Eddies but I ended up trading MSEX for an electric utility with higher divvy percentage and higher divvy growth rate.

    Check Chowder number closely when it comes to water utilities. I believe the recommended Chowder number for utilities is 8 which cuts out all but 3 of your list of nine and those 3 have a divvy yield of less than 3% which strikes them from the watch list of many DGI'ers.

    The question becomes why settle for less yield and divvy growth rate with water utilities when there are many good electric utilities out there?

    Excellent article and thanks for your contribution.

    Norm

    ReplyDelete

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