Water Sector Overview

Water Utilities are some of my favorite stocks for dividend income because of their consistent growth and recession-proof nature. They offer the most essential product on earth, and generally are the only company offering that product to their local customers.

Water is a need, not a want, making the utility sector more recession resistant than sectors like consumer discretionary, where users may stop buying products when times get tough. Consumers might forego their daily latte, delay spending on technology or clothes, or cut back on eating out at restaurants during difficult times, but they will do everything possible to keep their lights and water on.

Not only are water utility stocks recession-resistant, but they are also immune to competition, as utilities are one of the few industries where a monopoly is acceptable. Water, gas, and electric utilities are often the sole provider for the communities they serve, and are guaranteed the right to serve that market by regulatory commissions.

Regulating agencies also set the rates that water utilities can charge customers, which ensures a reasonable return on investment for the company. Having a guaranteed price for the product you sell is a benefit enjoyed by few businesses, and is another big plus for utilities.

Read more about this at “Regulated Utilities: The Market’s Legal Monopoly”

In summary, water utility stocks have three characteristics that make them excellent long-term investments:

• A recession-resistant product.
• A monopoly in the market it serves.
• A guaranteed price for the product it sells.

Dividend Growth Consistency

The combination of recession resistance and regulated earnings makes for slow and steady growth. This is evidenced by some of the long dividend growth streaks owned by companies operating in the water sector.

The longest of which comes from American States Water Company $AWR, which has paid increasing dividends for the last sixty-five years.

It has grown earnings at a 6.5% annualized rate over the last 20 years, and in a show of its consistency, had just four years of negative growth during that period.

Meanwhile, Essential Utilities $WTRG has a twenty-seven year streak of dividend growth, and has grown earnings at a 7.2% annualized rate over the last two decades.

It too has been remarkably consistent, with just one year negative earnings growth in the last twenty.

But these aren’t the only two water stocks with long track records of growth. In fact, every water company on the watch list has dividend growth streaks longer than ten years, and all but one have raised payouts every year for the last two decades plus.

Water Utility Watch List

The first sector-based watch list I ever published on Seeking Alpha was for the utilities sector. For that list, I decided to concentrate strictly on the electric and gas companies, while leaving the water utility companies off. However, it didn’t take long before I got a request from a reader to perform similar coverage on the water utilities.

Never one to disappoint readers, I obliged, and created a new watch list of the nine dividend paying water companies found on the late David Fish’s U.S. Dividend Champions List.

Much like their electric and gas brethren, the water companies are also excellent sources of reliable dividend income. Of the nine companies on the list, eight of them have produced dividend growth streaks of twenty years or more, and the other, American Water Works Company $AWK, is well on its way to meeting that distinction.

These companies don’t yield as much as some other stocks in the market, but you’d be hard pressed to find another sector with such long track records of dividend growth.

Here is the watch list, with information updated as of June 12th:

A PDF of this watch list can be downloaded HERE.

The document above has the historical dividend growth rates, current dividend rates and yields for each company. I’ve also included analyst 2018 earnings estimates, my dividend growth forecasts, and valuation targets for readers.

I hope people find this information useful in their due diligence efforts.

If you have interest in reading more of my thoughts on water companies, please check out these articles I’ve written about the sector on Seeking Alpha.

June 15, 2018

Top Water Utility Stocks For Dividend Growth And Income

January 15, 2016

The Top Water Utility Stocks For Growth And Income

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