This year has seen a great start for stocks, and many of the go-to water stocks are at or challenging new 52-week (or all-time) highs. Our focus is on the actual water owners rather than just the water technology and equipment makers for water companies and water utilities. It is amazing that just about this entire group is either right at 52-week or all-time highs or are close.

American Water Works Company Inc. (NYSE: AWK) is the king of all water stocks as the largest public water utility owner in America. It is now worth almost $7 billion, and with shares are $39.15 it is back within striking distance of a new all-time high as the 52-week range is $32.75 to $39.38. This also pays a 2.6% dividend yield to its common holders.

American States Water Co. (NYSE: AWR) is now within literally a few million dollars of being worth $1 billion. This company is geographically centric to California as it serves 75 communities in 10 counties in California. Shares crossed above the prior 52-week highs on Friday and again on Monday, with a new high of $52.08 against a prior 52-week range of $34.90 to $52.03. The dividend yield here is about 2.7%.

Aqua America Inc. (NYSE: WTR) is another regulated water utility, and its shares matched the prior 52-week high put in on Friday, and the new 52-week range is $21.52 to $28.70. This one is worth $4 billion and serves customers in customers in Pennsylvania, Texas, North Carolina, Ohio, Illinois, New Jersey, New York, Florida, Indiana, Virginia, Maine and Georgia. The dividend yield is now 2.4% since its shares have risen.

California Water Service Group (NYSE: CWT) is within about 2% of the 52-week high of $19.87, but still 10% from the prior highs of about $22 from 2006 to 2008. The company serves approximately 2 million people in California, Washington, New Mexico and Hawaii communities. This one is small at an $820 million market capitalization, and it has a dividend yield of about 3.3%.

One exception to the 52-week high challenge is Connecticut Water Service Inc. (NASDAQ: CTWS). Many will have never heard of it as it serves only about 55 communities in Connecticut (90,000 customers, which is about 300,000 people). Trading at $29.54, its 52-week range is $26.69 to $32.31. It also has a smaller market value of only $260 million, but it yields above-average at 3.3% for its common holders.

Consolidated Water Co. Ltd. (NASDAQ: CWCO) is even smaller and it is based in Cayman. Shares still hit a 52-week high of $9.34 on Monday, against its prior 52-week range of $6.70 to $9.30. The market cap here is a mere $135 million, and it also yields some 3.3%.

Middlesex Water Co. (NASDAQ: MSEX) is worth only about $307 million. With shares at $19.85, it is within 1% of going above the 52-week range of $17.48 to $20.06. Volume is very small here but it offers a 3.8% dividend yield. It provides service to approximately 150,000 customers, with a population of approximately 303,000 in central New Jersey through its contract sales. Its main operations are New Jersey, Delaware and Pennsylvania.

The York Water Co. (NASDAQ: YORW) just matched its 52-week of $19.05 on Monday against a 52-week low of $16.75. With a market cap of only $245 million, the dividend yield is about 2.9%. York Water specifically serves about 43 municipalities located in the York and Adams County area in Pennsylvania.

PowerShares Water Resources (NYSEMKT: PHO) is a water exchange traded fund, but we would note that it and other water ETF products tend to be more focused around the water technology and equipment makers. That being said, this ETF hit a high of $22.29 on Monday, against a prior 52-week range of $16.90 to $22.33.

What draws investors to water is the same thing that has drawn them for years and years: water is THE ultimate commodity. Americans in general have no clue how this precious commodity is abundant at home but scarce or in controlled supplies elsewhere. The drought conditions may have improved the understanding of how water scarcity works, but many would argue that America is still oblivious to this trend.

Investing in water is appropriate for just about all types of investors. All of the utilities pay a decent dividend or a high dividend, and all have proven to offer some defensive characteristics and growth characteristics for investors through time.

The company’s board of directors has approved a $0.075 per share increase in its quarterly cash dividend to $0.355 per share for the common stock of the company, a gain of 27%. It is also the company’s 305th consecutive dividend payment and the 58th consecutive year in which American States Water Co. shareholders have received an increase in their annual dividend payments.

This might not sound like much since the volume is about 100,000 shares per day and with a market cap of $766 million. The new dividend yield is actually 3.5% now for new investors, and we would argue that with the recent sector price gains that this is an above-peer payout.

Industry leader American Water Works Company Inc. (NYSE: AWK) now only pays about 2.7% to new investors buying at the current prices, and it already recently saw a dividend hike. California Water Service Group (NYSE: CWT) currently has a yield of about 3.4%, but that is also a $774 million market cap.

JON C. OGG

The water utilities covered by Gabelli were American Water Works Company, Inc. (NYSE: AWK), Aqua America Inc. (NYSE: WTR), California Water Service Group (NYSE: CWT), and American States Water Company (NYSE: AWR). 

Gabelli’s research noted, “Water utility stocks and the S&P Composite are unchanged year-to-date, which compares to an 11% advance for the S&P Utilities Index… we believe the water and wastewater industry is ripe for new rounds of consolidation and privatization as the sector is in the early stages of an extended period of restructuring.”

American Water Works Company, Inc. (NYSE: AWK) currently trades at $30.80 and it remains our own personal favorite for water investors.  We think this can go to the mid-$30′s or even get closer to $40 ultimately, but we are way short of Gabelli’s “private market value.”  Thomson Reuters has a consensus price target of $34.00, but Gabelli’s “PMV” is all the way up at $44.00 for this year, $47.00 for 2012, and $49.00 for 2013.  Cited are strong earnings growth, proposed water rate hikes, acquisitions, and asset changes.

Aqua America Inc. (NYSE: WTR) currently trades around $22.00 is also given high upside marks by Gabelli and its private market values are as follows: $27.00 for 2011, $28 for $2012, and $30 for 2013.  This upside is based upon strong credit ratings and a low-risk business model which has both a cost-driven model and a growth oriented culture.  Thomson Reuters has a consensus price target of about $24.60.

California Water Service Group (NYSE: CWT) trades around $18.80 and Gabelli calls it a high-quality water utility with a strong balance sheet (46% common equity) with an A+ investment-grade rating.  Recent and pending rate relief were also cited as strengths.  Gabelli’s private market value is $24.00 for 2011, $27.00 for 2012, and $28.00 for 2013. Thomson Reuters has a consensus price target of $21.00.

American States Water Company (NYSE: AWR) trades around $35.50 and Gabelli noted a strong balance sheet (53% common equity), an ‘A+’ investment-grade ratings, recent and pending rate activity, a 3.2% dividend, and privatization contracts.  Gabelli gives a private market value rating as follows: $48.00 for 2011, $50.00 in 2012, and $53.00 in 2013.  Thomson Reuters has a consensus price target of $38.34.

Again, these private market value ratings are not exact price targets.  They are meant to show implied upside bands under certain situations.  The Thomson Reuters consensus price targets are generally 10% above current share prices.

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JON C. OGG

No money was injured while filming

Stock splits usually bring back memories of the old tech bubble and dot-com bubble.  Fundamentally, nothing changes at the company other than that smaller investors get to invest in shares at a lower nominal share price.  Now that the markets have recovered so much, with the recent weeks as an exception, we are seeing many companies with higher share prices starting to announce stock splits. There may even be more current stock splits pending and freshly affected than we can remember seeing in years.

We have seen major stock split announcements from the likes of many companies.  Some of the larger splits are from the following: Clean Harbors, Inc. (NYSE: CLH); Oneok Partners LP (NYSE: OKS); Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN); Cerner Corporation (NASDAQ: CERN); Polycom, Inc. (NASDAQ: PLCM); California Water Service Group (NYSE: CWT); Oceaneering International, Inc. (NYSE: OII); CSX Corp. (NYSE: CSX); Six Flags Entertainment Corporation (NYSE: SIX); II-VI Inc. (NASDAQ: IIVI); Flowers Foods, Inc. (NYSE: FLO); and Church & Dwight Co. Inc. (NYSE: CHD).  We even have a fresh reverse stock split from Pacific Ethanol, Inc. (NASDAQ: PEIXD).  You might think it learned from Citigroup, Inc. (NYSE: C) but Pacific Ethanol did not have a choice if it wanted to keep its listing.

There is also no way to have an article about stock splits without pondering when or what it would take for great companies like Apple Inc. (NASDAQ: AAPL), Google Inc. (NASDAQ: GOOG) or Netflix, Inc. (NASDAQ: NFLX) to consider splitting their shares.

The road to stock splits has really become more common.  We have not seen this many pending splits in years.  These are not presented in any significant order.

Clean Harbors, Inc. (NYSE: CLH) announced a two-for-one stock split in the form of a dividend payable on July 26, 2011 to holders of record at the close on July 6, 2011.

On Tuesday came word from Oneok Partners LP (NYSE: OKS) that it planned to conduct a two-for-one split of its common and class-B units.  This was its first split and you rarely see “units” split.  It is 43% owned by its general partner, Oneok Inc. (NYSE: OKE).

In May came a biotech stock split from Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN).  It previously approved a 2-for-1 stock split and shares began trading on a split-adjusted basis on May 23.  Shares went from almost $100 to under $50…

Also in May came word from Cerner Corporation (NASDAQ: CERN) that its board of directors had approved a 2-for-1 stock split in the form of a dividend for holders of record on June 15, 2011. The distribution date for the new shares is June 24, 2011.

Polycom, Inc. (NASDAQ: PLCM) announced last month after its pact with H-P that its board of directors approved a two-for-one split of its stock in the form of a stock dividend for holders of record at the close of business on June 15.

Looking through water investments is often a price-sensitive effort and investors rarely get to buy their favorite water stocks at big discounts.  In utilities, our review for the top pick in 2011 focused on Aqua America Inc. (NYSE: WTR), American Water Works Company, Inc. (NYSE: AWK), American States Water Company (NYSE: AWR) and California Water Service Group (NYSE: CWT).  We also went through the valuations and the outlook for Layne Christensen Company (NASDAQ: LAYN), Tetra Tech Inc. (NASDAQ: TTEK), and Watts Water Technologies, Inc. (NYSE: WTS).  In the land of ETFs, there are the PowerShares Water Resources (NYSE: PHO) and the PowerShares Global Water (NYSE: PIO) depending upon your geographic focus.

There is a clear winner for 2011 and we followed it up with a “runner-up selection” as to which water stock is the best pick for investors in 2011.  We have a basic table below for performance metrics and have added color with support for our top water pick for 2011.

Aqua America Inc. (NYSE: WTR) operates regulated utilities which offer community-wide water or wastewater services for residential, commercial, and industrial customers in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, New York, Florida, Indiana, Virginia, Maine, Missouri, and South Carolina.  The stock has recovered substantially off of  its lows.   It had roughly 3 million customers.  The company  has a $2.6 billion market cap, and with a $19.30 price it trades an an implied forward P/E ratio of 22.7 against 2009 expected earnings.  Its 52-week trading range is $12.20 to $22.00.

American States Water Company (NYSE: AWR) offers water and electric service utility operations for residential and commercial customers.  The difference is that this is not as geographically diverse and it serves many areas which have been hit by the woes of the declining real estate market on top of other issues.   It also distributes electricity in 1 customer service area and 3 water service regions operating within 75 communities in 10 counties in California, as well as provides water service in 21 customer service areas with close to 250,000 water customers and about 23,000 electric customers in California, and it operated 2,724 miles of pipeline of water transmission and distribution systems; it also served 13,488 water-service customers in Arizona and operated 184 miles of pipeline of water transmission and distribution systems.  The $650 million market cap based on a $37.53 stock price gives it an implied forward P/E ratio of 21.4 times expected 2009 earnings. Its 52-week trading range is $27.00 to $42.00.

California Water Service Group (NYSE: CWT) provides water utility and other related services in California, Washington, New Mexico, and Hawaii.  California Water Service Group provides service to approximately 463,000 customers in 83 communities (2007 data).  With a $42.80 stock price, this trades at an implied 20.8-times forward 2009 expected earnings.  Its 52-week trading range is $27.68 to $48.28.

Where this gets interesting is that the bulk of these four trade much closer to their highs than to lows, with the exception of American Water Works.  But it also trades at the largest discount to its forward 2009 earnings estimates.  Part of the problem is that it is a recent IPO after the Germans sold it back to the US public markets.  All of the other stocks in these four are expensive if you consider a mere forward-P/E ratio compared to the market today.  That is because of the defensive nature of the stocks and probably also because of inherent regional monopolies they hold.  Have you ever inquired to see if you could get a new water company of competitive quotes for water service?  You can get a new water provider, if you move to a new market.

Again, this is just four of the companies we cover in the domestic utility side of the water sector equation.  This is also one of the most defensive stock sectors for US investors.  The sector never really gets “cheap” if you are just using P/E ratio comparative analysis.  Traditionally, these might not rally as much as the markets if we go into a bull market mode.  Again, that is “traditionally” and you will be surprised if you look at just how much these have recovered since the lows of October and November of 2008.  We will be looking separately as filtration, infrastructure, and other services in different pieces this week.

Jon C. Ogg
March 23, 2009

Alcoa (AA) Raised to Overweight at JPMorgan.
Aqua America (WTR) Raised to Outperform at Baird.
Beckman Coulter (BEC) Raised to Overweight at Barclays.
California Water (CWT) Raised to Outperform at Baird.
Chartered Semiconductor (CHRT) Raised to Neutral at HSBC.
China Telecom (CHA) Raised to Overweight at Morgan Stanley.
Nicor (GAS) Raised to Outperform at Baird.
Nokia (NOK) Raised to Outperform at Credit Suisse.
Piedmont Natural Gas (PNY) Raised to Outperform at Baird.
Watson Wyatt Worldwide (WW) Started as Buy at SunTrust Robinson Humphrey.

-JON C. OGG