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American States Water Co (AWR), Aqua America Inc (WTR), California Water Service Group (CWT): The Power of Dividends in Two Charts

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Investing in dividend-paying stocks might not be as endorphin-pumping as hunting for the Next Big Thing while it’s still flying under the radar. However, if your goal is to pump up your bank account, you might consider investing in dividend payers.

Chart 1: Average annual return by dividend policy 

Invesco from Ned Davis Research

Here’s what $10,000 invested in each category would be worth at the end of the 30-year period:

Dividend Growers & Initiators: $152,200

All Dividend Payers: $125,560

Dividend-Payers with no Change: $80,500

Non-Dividend Payers: $16,100

Dividend Cutters & Eliminators: $9,140

The backdrop is set, so let’s hone in on water utilities.

Chart 2: The Power of Compounding & Reinvested Dividends

American States Water Co (NYSE:AWR) primarily operates as a water utility in California. I’m using it to show the long-term power of compounding because I’ve previously called it a top water stock and, unlike most of the other water utilities, it’s traded for at least 25 years. 

AWR Total Return Price Chart


Here’s what $10,000 invested 25 years ago would be worth:

American States: $173,000 (68% from the reinvested dividends)

S&P 500: $109,000 (42% from reinvested dividends)

Not only did American States Water Co (NYSE:AWR)’ total return significantly outperform the market, it did so with less risk. It has a beta of 0.54 vs. the market’s 1.0.

Water utilities: DRIPing with attractive features
Water utilities are attractive because: (1) they’re monopolies or near-monopolies; (2) water supply is limited and will likely shrink due to long-term warming; (3) demand should increase; and (4) water has no substitutes.

Interest rates have risen over the last few months, and utility stocks usually perform best when rates are decreasing. However, rates are still near historical lows. Ideally, you should take advantage of dividend reinvestment plans, or DRIPS, and invest regularly, so you’ll be investing as rates move both up and down.

Water utilities with market caps of at least $300 million

Company Div. Yield Fwd. P/E 5-Yr PEG     3-Yr Avg Rev Growth 3-Yr Avg EPS Growth Profit Margin ROE
American States Water 3.1% 18.6 9.1 9% 20.3% 12.4% 13.2%
American Water Works  2.9% 16.5 2.4 5.6% 0% 12.8% 8.3%
Aqua America Inc (NYSE:WTR)  2.5% 20.0  3.7 4.2% 22% 28% 15.4%
California Water Service Group (NYSE:CWT)
3.3% 18.0  3.8 7.6% 6.3% 8.4% 9.2%
Connecticut Water Srv. 3.3% 18.2  3.9 12.2% 8.7% 16.8% 9.3%
Middlesex Water 3.8% 19.4  7.6 6.6% 7.7% 14.3% 9%
SJW Corp. 2.8% 18.8  1.4 6.6% 13.4% 9.2% 8.6%

Yahoo! Finance & Morningstar; data to Sept 13.

American States Water Co (NYSE:AWR), which has a $1 billion market cap, provides water to communities in northern, southern, and coastal California; and electric service to the Big Bear Lake region. Its services subsidiary operates and maintains water and wastewater systems on military bases throughout the U.S.

Its 2012 results were strong, as revenue and EPS from continuing operations increased 11.2% and 26.5%, respectively. More recently, second-quarter results were solid, with revenue rising 5.3% and EPS increasing 7.6%. Its core water utility segment’s contribution to EPS rose 18%. It hiked its dividend 14.1%, effective Sept. 1. The company has paid dividends every year since 1931 and has increased its dividend each year since 1954.

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