Best Water Utility Stocks
Sometimes, boring businesses can produce exciting returns. Water utility companies are great examples of this. They rarely make headlines, but some of them have been rewarding investors with rising dividends for decades. Let’s take a look at the seven best water utility stocks for 2017.
Water utilities provide drinking water and wastewater services to residential, commercial, and industrial customers. Because water is a vital resource, water utilities provide an essential service.
What’s more is that the industry is known for its high barriers to entry. Because it doesn’t make economic sense to have two sets of water utility infrastructures serving the same community, water utility companies are often allowed to operate as monopolies. Consistent demand and the lack of competition means water utility stocks can be great income investments.
Of course, water utilities are just one type of utility stocks. Investors looking for dividend ideas may also want to check out our column on high-yield utility stocks and our utility stocks list.
Now, let’s take a look at the best water utility stocks for 2017.
Water Utility Stocks 2017
| Company Name | Stock Ticker | Dividend Yield | |
| 1 | American Water Works Company Inc | NYSE:AWK | 2.07% |
| 2 | Aqua America Inc | NYSE:WTR | 2.29% |
| 3 | SJW Group | NYSE:SJW | 1.71% |
| 4 | California Water Service Group | NYSE:CWT | 1.99% |
| 5 | American States Water Co | NYSE:AWR | 2.0% |
| 6 | Global Water Resources Inc | NASDAQ:GWRS | 2.81% |
| 7 | Connecticut Water Service Inc | NASDAQ:CTWS | 2.04% |
#1 American Water Works Company Inc
American Water Works Company Inc (NYSE:AWK) is the largest publicly traded water and wastewater utility company in the United States. Headquartered in Voorhees, New Jersey, the company’s history can be traced all the way back to 1886, as the American Water Works & Guarantee Company. Today, it provides regulated and market-based drinking water, wastewater, and other related services to approximately 15 million people in 47 states and Ontario, Canada.
American Water Works is a dividend-paying company. At its current quarterly dividend rate of $0.41 per share, AWK stock has an annual dividend yield of 2.07%.
Because American Water Works is the biggest player in what’s known to be a slow-changing industry, you might not associate it with fast earnings growth. However, in the past several years, the company has delivered solid results on the bottom line. In 2016, adjusted earnings came in at $2.84 per share, up 7.6% from 2015. For the current year, American Water Works expects earnings per share (EPS) to be in the range of $2.98 to $3.08, which, at the midpoint, would represent a 6.7% increase from 2016. (Source: “2017 First Quarter Earnings Conference Call,” American Water Works Company Inc, May 4, 2017.)
Going forward, American Water Works expects to achieve a compound annual growth rate (CAGR) of between seven percent and 10% in EPS through 2021. It also targeting dividend growth at or above the top of long-term EPS CAGR. The latest dividend hike was an impressive 10.7% increase. For investors of this water utilities company, the best could be yet to come.
#2 Aqua America Inc
Aqua America Inc (NYSE:WTR) is another heavyweight player in the water utilities industry. It serves approximately 3 million people in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana, and Virginia.
For income investors, the main reason for investing in water utilities stocks is to collect a steady stream of dividends. On that front, Aqua America is doing great job. The company has been paying uninterrupted quarterly dividends for 72 years. (Source: “Dividend History,” Aqua America Inc, last accessed June 19, 2017.)
What separates Aqua America from other publicly traded water companies is its aggressive “growth through acquisition” strategy. In the past decade, the company has completed nearly 200 acquisitions and growth ventures. Last year, Aqua America invested more than $22.0 million to acquire 19 water and wastewater systems, adding approximately 6,600 new customers.
The company is also delivering strong organic growth. Aqua America’s total customer base expanded 1.6% in 2016, representing 15,300 new customer connections. The company expects to keep acquiring large systems. Customer growth for the current year is expected to be in the range of 1.5% to two percent. (Source: “Aqua America Reports Earnings for 2016,” Aqua America Inc, February 23, 2017.)
The acquisition strategy allowed the company to consistently grow its business and raise its return to shareholders. The company currently pays quarterly dividends of $0.19 per share, translating to an annual dividend yield of 2.29%. Over the past 10 years, Aqua America’s quarterly dividend rate has more than doubled. (Source: “Dividend History,” Aqua America Inc, last accessed June 19, 2017.)
#3 SJW Group
In the world of income investing, there is an elite group of stocks called “dividend kings.” These are companies that have raised their payout every year for at least 50 years. Among the thousands of companies trading in the U.S. stock market, there are only 20 dividend kings.
The list of dividend kings contains familiar names like Johnson & Johnson (NYSE:JNJ) and The Coca-Cola Co (NYSE:KO). But it also includes a few water company stocks. SJW Group (NYSE:SJW) is one of them.
SJW Group is a holding company with four subsidiaries: San Jose Water Company, SJW Land Company, SJWTX, Inc., and Texas Water Alliance Limited. Among them, San Jose Water Company and SJTWX, Inc. are in the water utilities business.
Fifty consecutive years of dividend increases show how solid SJW’s business is. Moreover, the company’s business has been growing. From 2011 to 2016, SJW Group’s adjusted EPS has increased 14.6%. (Source: “Investor Presentation,” SJW Group, March 2, 2017.)
The latest dividend hike—the one that made SJW Group a dividend king—was announced this January. It was a 7.4% increase to the company’s quarterly dividend rate, to $0.87 per share. At its current share price, SJW stock is yielding 1.71%. (Source: “SJW Group Announces Dividend Increase and Sets Date for 2016 Full-Year and Fourth Quarter Results Announcement,” SJW Group, January 25, 2017.)
While the yield may not seem impressive compared to its peers, note that SJW has been one of the best water stocks when it comes to share price performance. In the past five years, SJW stock has surged 123.7%.
#4 California Water Service Group
California Water Service Group (NYSE:CWT) is also a dividend king, having raised its annual payout every year for 50 consecutive years. The company operates through six wholly owned subsidiaries in California, Washington, New Mexico, and Hawaii.
California Water Service Group has more than 509,000 customer connections and more than $1.5 billion in gross utility plant assets, and is generating more than $500.0 million in annual revenue. Note that four of the company’s six subsidiaries are regulated by state public utilities commissions.
In the first quarter of 2017, CWT’s revenue increased 0.3% year-over-year to $133.0 million. What’s really impressive is that the company generated earnings of $0.02 per share, because in the year-ago period, it had a net loss of $0.02 per share. The improvement was driven by rate increases and decreases in operating expenses. (Source: “California Water Service Group Announces Earnings for the First Quarter 2017,” California Water Service Group, April 27, 2017.)
CWT stock is currently yielding 1.99%.
#5 American States Water Co
American States Water Co (NYSE:AWR) is another water utilities stock that has earned the title of dividend king. As a matter of fact, American States Water has an even longer dividend increase history than SJW Group and California Water Service Group; the company has raised its dividend every year for 62 consecutive years. (Source: “American States Water Company Dividend Date & History,” NASDAQ, last accessed June 19, 2017.)
American States Water operates through two main subsidiaries, Golden State Water Company and American States Utility Services. Golden States Water Company provides water service to around 261,000 customers located in 10 counties in Northern, Coastal, and Southern California. It is also an electric utility with 24,000 customers in the City of Big Bear and surrounding areas in San Bernardino County, California.
The other main subsidiary, American States Utility Services, provides operations, maintenance, and construction management service for water and wastewater systems located on military bases. Its business is secured by 50-year privatization contracts with the U.S. government.
American States Water has paid a dividend every year since 1931 and is currently yielding 2.0%. In the last five years, its annual payout has increased at a compound annual growth rate of approximately 11%.
#6 Global Water Resources Inc
Global Water Resources Inc (NASDAQ:GWRS) is a water resource management company headquartered Phoenix, Arizona. The company owns and operates nine utility companies that provide water, wastewater, and recycled water services. Global Water Resources currently serves more than 50,000 people in approximately 20,000 homes located within its 332 square miles of certificated service areas.
This water utilities company deserves investor attention. It has a modern service infrastructure, 90% of which is less than 13 years old. It also boasts approximately 600 square miles of permitted service territory, meaning that it can eventually serve upwards of 2 million connections. Global Water Resources also pays handsome dividends, with an annual yield of 2.81%, making it one of the highest-yielding names among water utility stocks that pay dividends.
#7 Connecticut Water Service Inc
To round off the list of top water utility stocks is Connecticut Water Service Inc (NASDAQ:CTWS). Headquartered in Clinton, Connecticut, CTWS serves 130,000 water customers, representing 440,000 people in 79 communities across Connecticut and Maine. The company also serves more than 3,000 wastewater customers in Southbury, Connecticut.
Approximately 95% of CTWS’ revenue in the last 12 months comes from its regulated water utilities segment.
While the company is not yet a dividend king, it is not far from earning that title; Connecticut Water Service has raised its dividend for 48 consecutive years. The latest dividend hike, which was announced last month, was a 5.3% increase to its quarterly dividend rate. The company is now yielding 2.04%. (Source: “Connecticut Water Service, Inc. Increases Cash Dividend on Common Shares by more than 5%,” Connecticut Water Service Inc, May 11, 2017.)