In a world of scarce resources, there’s perhaps no resource more vital to human life than water. And, since water is a basic need, companies that engage in water distribution are about as safe a business model as you’ll find.
As a result, investors interested in steady, reliable stocks with rock-solid business models should consider the publicly traded water utilities. Water demand isn’t likely to stop anytime soon. And, due to a combination of gradual population growth and steady rate increases, there’s plenty of room for these stocks to continue rewarding investors for many years to come.
Scarce resource, plentiful profits
The four water utilities investors should get to know are American Water Works Company Inc (NYSE:AWK), American States Water Co (NYSE:AWR), Aqua America Inc (NYSE:WTR), and California Water Service Group (NYSE:CWT). As you can probably infer, these companies are extremely similar. They each engage in the production, treatment, testing, and distribution of water, in various parts of the country.
Founded in 1886, American Water Works Company Inc (NYSE:AWK) is the largest publicly traded U.S. water and wastewater utility company. It operates in more than 30 states and parts of Canada, and has displayed strong performance since its 2008 initial public offering. According to the company, American Water Works Company Inc (NYSE:AWK)’s earnings have increased by 14% annualized from 2010 to 2012, indicative of its reliable business model.
American States Water Co (NYSE:AWR) and California Water Service Group (NYSE:CWT) both operate within California, and both hold a nearly $1 billion market capitalization. Furthermore, both companies generate the slow-and-steady type of results that utility investors expect. American States Water Co (NYSE:AWR) reported its second-quarter diluted earnings per share rose 7.5% versus the same quarter one year ago, on the back of 5.3% revenue growth.
Meanwhile, California Water Service Group (NYSE:CWT) reported second-quarter profits that are very indicative of a utility. The company generated $13.5 million in quarterly profit, up fractionally year over year. Revenue also rose at a slow-and-steady pace, from $143.6 million in the second quarter 2012 to $154.6 million in its recently concluded second quarter.
Aqua America Inc (NYSE:WTR), like its peers, is highly profitable, and is actually growing faster than the industry. Aqua America’s second-quarter diluted earnings per share jumped 27%, thanks to the company’s focus on efficiency. Aqua America Inc (NYSE:WTR) has taken measurable steps in recent months to grow through acquisition and simultaneously shed under-performing assets.