Of all the places to invest, there may not be a more recession-proof sector than water stocks. Consumers need access to clean water for drinking, bathing and eating on a daily basis, regardless of the state of the economy or the world.
This means that companies in the water business have a regular customer base and very consistent revenues and earnings.
This great stability paves the way for water stocks to pay growing dividends to shareholders. In fact, many water stocks have extremely long histories of increasing dividends. Some have even reached Dividend King status, which means they have raised dividends for at least 50 consecutive years. This article will examine 3 of our favorite water stocks.
That means when it comes to dividend payments, there are few places in the market that can offer the safety and reliability that the water utility industry provides to investors.
I recommend starting with these three top water stocks:
American States Water Co. (AWR)
American States Water Co. operates two business segments. Utilities provide water to 262K customers in 10 counties in California. This segment also provides electricity to nearly 26K customers in the San Bernardino County mountain communities in California.
Additionally, American States Water’s services segment provides wastewater services on several U.S. military bases.
AWR’s utility business, which accounts for two-thirds of revenues, depends on regulators for growth as the company is allowed to recover its investment in infrastructure and maintenance projects through the use of rate increases. The company has enjoyed an 8.5% average annual rate hike in its regulated water business since 2017.
Where the company should see more growth is in its services business. American States Water has begun slowly expanding in this area through contract signings with U.S. military bases. Working in the company’s favor is that contracts are 50 years long. These contracts provide for decades of revenue once signed.
Between its two segments, the company has experienced a growth rate higher than the typical utility company. American States Water’s earnings-per-share grew at a 7.6% compound annual rate between 2011 to 2020.
Shareholders have been the beneficiary of AWR’s success. Following a 9.8% increase for last September’s payment, the company’s dividend growth streak has reached 66 years. There are just three other companies that can claim a longer dividend growth streak.
The dividend has a compound annual growth rate, or CAGR, of 9.3% over the last decade. Shares currently yield 1.9%, which is higher than the average yield of 1.5% for the S&P 500.
SJW Group (SJW)
SJW Group distributes water to customers in California and Texas. Following its completed merger with Connecticut Water Service in late-2019, the company also has operations in Connecticut and Maine as well.
SJW Group also has a small real estate segment that owns and develops properties for residential and warehouse clients in California and Tennessee.
SJW Group has nearly 230K connections and provides water to almost 1 million customers in the affluent Silicon Valley area. The company’s merger with Connecticut Water Service has led to some much-needed diversification.
This merger added 138K connections and 450K customers to SJW Group’s business and also offered geographic diversification, something that the company was lacking previously. Prior to the merger, California contributed more than 90% of the SJW Group’s income. That figure is now reduced to just over half.
At the same time, SJW Group is now the third-largest publicly traded water utility company in the U.S. We feel that the company’s size and diversified business should allow SJW Group to grow its earnings-per-share at a higher rate than its 10-year CAGR of 6.8%.
With profits growing at a faster than usual pace, we believe the company’s dividend to be very safe. SJW Group raised its dividend by 6.3% for the March payment date.
SJW Group has now increased its dividend for 55 consecutive years. It should be noted that prior to the merger, Connecticut Water Service had an impressive growth streak of its own at 50 years. SJW Group yields 2.3% at the moment.
The York Water Company (YORW)
The York Water Company is the oldest investor-owned regulated water utility company in the U.S. It was founded in 1816 and today has an average daily water availability of more than 35 million gallons.
The company has nearly 73K connections and provides water services to more than 200K customers. York Water Company earned nearly $54 million in revenue in 2020 and has a market capitalization of $636.5 million.
York Water Company provides water services to 51 municipalities in three counties in south-central Pennsylvania.
The company owns and operates a variety of facilities used to provide water to customers, including two wastewater collection systems, five wastewater collection and treatment systems and two reservoirs that contain more than 2 billion gallons of water.
The company also operates a 15-mile pipeline used to transport water to connections in Adams County.
The company has seen its earnings-per-share grow with a CAGR of 6% over the last decade. York Water Company has invested in its infrastructure over the years, especially in the area of new pipes, wastewater treatment facilities and services lines. The company is expected to recover much of these investments through rate increases.
York Water Company raised its dividend 4% for the 1/15/2021 payment. The company’s dividend growth streak is now at 23 years, but York Water Company has paid a continuous dividend for more than 200 years. This gives the company the longest record of consecutive dividend payments in the U.S., a truly amazing streak.
York Water Company has managed to keep paying its dividend through the Civil War, two World Wars, the Great Depression and various other difficult operating environments.
York Water Company’s dividend is time-tested, which means shareholders can rest easy that the next headwind will likely not be enough to stop future dividend payments. The stock has a current yield of 1.5%.
On the date of publication, Bob Ciura did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.