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

Water Utilities - Market Cap

Water Utilities - Yield

American Water Works Company Inc (AWK)

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%.

Read the Dividend Stock Analysis for AWK.

Aqua America Inc (WTR)

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%.

Read the Dividend Stock Analysis for WTR.

American States Water Company (AWR)

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%.

Read the Dividend Stock Analysis for AWR.

California Water Service Group (CWT)

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

 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)

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)

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)

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)

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.

Water Utilities - CCC

(Source: Data from Dave Fish’s CCC list)

Full Disclosure: None. My full list of holdings is available here.

12 thoughts on “How to Invest in Water – Water Utilities

  1. Another great post R2R! I really appreciate you getting all this information together. Especially since I am meaning to increase my utility sector exposure. I had briefly looked over some water utilities, but from your list, I most definitely like AWR the best. I’ll have to look into them further. Thanks again!

    – HMB

    • Happy to put this article together, HMB. Glad you liked it. AWR looks like a great company – a really long dividend growth streak.
      Based on current valuation, SJW looks really good – and is also seeing a lot of insider buying.

      Looking forward to see if you pick up any of these companies.
      R2R

  2. I like Water Utilities, because I do not think there is the obsolescence factor there. The risk is just regulatory.

    I think the valuations are a little high right now, but the growth would likely compensate inflation over time. Getting these utilities at the right price could be helpful to preserve wealth.

    There are two UK based water utilities that are publicly traded, which seem cheaper, though they do not have the dividend growth record of their US counterparts.

    Best Regards,

    DGI

    • I agree that most risk is regulatory. However, while I was reviewing and analyzing three of the water utilities last month, I found that the companies are also looking at the non-regulatory segment of the market to grow their business. I cant remember off the top of my head – but I think it was AWK that has some pretty decent exposure there and looking for further growth. Of the lot, AWK is also the the one with the highest expected EPS growth – so that is interesting.

      I agree that the valuations are a bit high for most of them except SJW.

      I will have to check out the UK-based water utilities. Thanks for the info.
      R2R

  3. These are great finds. I’m still digesting the REITs analysis. As I picked up some REITs today when most of them are at the 52 week low level.

    Water is a huge crisis in California since 2010. NPR has been talking about how the underground pipe are not up to par, a major earthquake can leave millions without water for an extended period. For that maybe there will be a price increase?!

    I might buy the companies that I know Connecticut maybe?! Would you do a more in-depth article? I’m looking forward to your next analysis.

    • Vivianne,
      Utilities are bearing the brunt of the treasury rate rise, and I think we will still see some more of that. I am trying to get my research done over the coming weeks so that I have my picks ready when I feel I want to start initiating and adding positions.

      There are lot of problems in the US – CA is probably seeing the effects more because of the huge population. Most southwest states and southern states are also facing issues. I will be sharing some more ideas in the coming days/weeks on how to invest in water. Stay tuned.

      Connecticut looks interesting – I will have a look at it and share what I find.

      cheers
      R2R

  4. eldee says:

    Hi r2r

    Quick question….. Do you know of any Canadian Water Utilities or ETF’s worthwhile to invest on this side of the boarder?

    Thank you !

    • Hi eldee,
      AFAIK, there is no exclusive water utility company or ETF specializing in water utilities only. But one interesting company to look into is Algonquin Power & Utilities (AQN.TO). The company has water utility operations in the US which they’ve been buying over the last few years increasing their water footprint. Their main operations are still in power, but their share of water utilities is increasing and is expected to get higher over the coming years. I just initiated a new position in this company last month – have a look: http://roadmap2retire.com/2015/07/recent-buy-14/

      Hope that helps

      Let me know if you have any specific questions.
      R2R

    • Hi mat,
      There arent too many international companies to profile. I can think of one – Algonquin Power & Utilities (AQN.TO) which has exposure to water utilities.

      There are a few other water focused companies in EU – but arent purely water utilities – so I left them out. Will be profiling them in a different article.

      cheers
      R2R

      • mat says:

        Thanks,
        Do you know if water companies have a direct purchase program through you can purchase directly from them ??

        Something else, although not a water company, but AIR LIQUIDE from France is a similar company providing gases for the industry.

        • Most companies do not have direct water rights. The only market where anything remotely is possible is in Australia. They have a much developed water trading market than the rest of the world.

          For the most part, the government (and the public in general) hates giving direct water rights to corporations for obvious reasons. It is for this reason, that investors have to look at alternatives when investing in water.

          R2R

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