Infrastructure

6 Water Stocks With Long-Term Upside Ahead

Regulated utility company stocks are not usually cheap. They don’t pay huge dividends and, while a handful are billion-dollar firms, only two have market caps in the double-digit billions.

However, they are safe, and they do pay a dividend that is greater than today’s money market or other savings account rate. Safe because everyone needs water and these companies have it. Safe again because state regulators set rates that guarantee water companies a reasonable, if not massive, profit.

To improve their margins, the publicly traded companies have succeeded in getting a provision inserted into the infrastructure bill pending in the U.S. House of Representatives that would create incentives to municipalities that would further privatize American water supplies. Currently, about 83% of Americans get their water from public systems. This is a vast opportunity for big water companies.

Publicly traded water companies are not universally loved, however. According to a report from advocacy group Food and Water Watch, publicly traded water companies in New Jersey add more than $150 to an average user’s annual water bill.

As Mark Twain once observed, “Whiskey’s for drinking; water’s for fighting over.”

We’ve taken a look at six publicly traded U.S. water companies with a focus on their areas of operation, their performance over the past year and their dividend payment and yield. Should a federal infrastructure bill ever be enacted with incentives to privatize more U.S. water systems, these stocks will take off.

American Water Works Co. Inc. (NYSE: AWK) is the largest publicly traded water and wastewater service firm in the United States, with a market cap of around $24 billion. The company serves some 15 million customers in 46 states. Both its size and its geographic diversity might be attractive to investors.

This stock closed Monday at $132.97 a share, down about 0.3% for the day, in a 52-week range of $92.00 to $141.70. Its trailing price-to-earnings (P/E) ratio is 38.08, and its forward P/E ratio is only slightly less rich at 31.46. The consensus 12-month price target on the stock is $133.83. The company pays an annual dividend of $2.20 a share, for a yield of 1.65%.

Essential Utilities Inc. (NYSE: WTRG) is the country’s second-largest regulated water services firm, with a market cap of around $10.6 billion. The company has 3 million customers in eight states, all east of the Mississippi River. Essential also operates natural gas pipelines through its Peoples subsidiary.

The company’s stock closed $43.37 on Monday, up 0.2% for the day, in a 52-week range of $30.40 to $54.52. Its trailing P/E ratio is 40.08 and the forward P/E is 26.17. The price target on the stock is $48.20, implying a potential upside of about 10%. Essential Utilities pays a dividend of $0.94, for yield of 2.17%.

American States Water Co. (NYSE: AWR) provides water service to about 280,000 California customers, along with water system services to U.S. military bases around the country under long-term (50 years) contracts. The firm’s market cap is about $2.8 billion.

Shares closed Monday at $76.91, down about 1.2% for the day, in a 52-week range of $65.11 to $96.64. Its trailing P/E ratio is 33.27 and its forward P/E is 31.61. The price target on the stock is $80.75, implying a potential upside of 5%. American States Water pays a dividend of $1.22, for a yield of 1.59%.

Watts Water Technologies Inc. (NYSE: WTS) manufactures and sells products and systems that manage the flow and conservation of water resources. Its market cap is around $2.7 billion. The company serves residential and commercial customers worldwide, and it was founded in 1874.

The stock closed at $79.80 a share on Monday, essentially flat, in a 52-week range of $69.02 to $114.45. The trailing P/E ratio is 20.58 and the forward P/E is 21.77. The stock has a price target of $86.25, implying an upside of around 8%. It pays a dividend of $0.92, for a yield of 1.15%.

California Water Service Group (NYSE: CWT) is the fifth-largest publicly traded water utility and services group in the country, with a market cap of about $2.3 billion. It serves more than 500,000 customers in California, Hawaii and Washington.

The company’s stock closed at $46.95 on Monday, down about 2.2%, in a 52-week range of $39.74 to $57.48. The stock’s trailing P/E ratio is 44.49, and the forward P/E is 30.96. California Water Service’s’ price target is $51.25, implying a potential upside of about 9.2%. The company pays a dividend of $0.85, for a yield of 1.81%.

SJW Group (NYSE: SJW) provides water and water services throughout the United States. Its main area of operations is around San Jose, California, where the company serves 231,000 customers. Its market cap is nearly $1.8 billion.

The stock closed Monday at $62.12, up about 0.2%, in a 52-week range of $45.60 to $74.99. The 12-month price target is $70.20, implying a potential upside of around 11%. SJW’s trailing P/E ratio is 88.38, and the forward P/E ratio is 28.33. The company pays a dividend of $1.28, for a yield of 2.06%.