California Water Service Group (CWT) & 5 Small-Cap Stocks Raising Dividends for 45 or More Consecutive Years

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This is due to expectations of higher rates, given that in January 2012 the company filed a general rate case application requesting rate increases of 21.51% in 2013, 4.87% in 2014, and 12.59% in 2015. The approval is still pending, while interim rates are in effect now. The company has a ROE of 8.3%. In terms of valuation, like other water utilities featured in this article, SJW Corp. (NYSE:SJW) is somewhat pricey, trading at a forward P/E of 20.2x, above the water industry’s forward multiple. Last quarter, the stock was a holding in Mario Gabelli and Chuck Royce’s hedge funds.

But wait, there’s more

Northwest Natural Gas Co (NYSE:NWN), a 153-year-old natural gas distribution and storage company serving customers in Oregon and Washington, has increased dividends for 57 consecutive years. At present, the stock yields 4.1% on a payout ratio of 79% of the current-year EPS estimate. The company’s dividend grew at an average CAGR of 4.6% over the past five years, despite a contraction in Northwest Natural Gas Co (NYSE:NWN)’s EPS over the same period. The company operates in a constructive regulatory environment, which includes “innovative margin stabilization and incentive sharing mechanisms.” Northwest Natural Gas also boasts strong balance sheet, stable cash flows, and low refinancing risk.

The company’s financial performance has been under pressure due to falling natural gas prices. Natural gas rates to customers have declined for four consecutive years now, dropping 30% since 2008. According to the company, this price decline has saved its customers over $400 million over that period. In contrast with falling rates, customer count has been increasing—it grew 0.9% last year and 0.8% in 2011. The utility projects its EPS in the range of $2.15-$2.35 in FY2013, with the guidance midpoint above last year’s EPS of $2.22. In terms of valuation, this stock is priced at 19.4x forward earnings, above its respective industry’s multiple. As regards hedge fund interest, billionaire Ken Griffin was bullish on Northwest Natural Gas Co (NYSE:NWN) last quarter.

American States Water Co (NYSE:AWR) provides water service to customers in California, distributes electricity to customers in the Big Bear recreational area of California, and provides operations, maintenance and construction management services for water and wastewater systems that are located on military bases in the United States. The company has raised dividends for 58 years in a row, and currently pays a dividend yield of 2.5% on a payout ratio of 52% of the current-year EPS estimate.

The company’s dividend grew at an average CAGR of 21.0% over the past five years, which compares to American States Water Co (NYSE:AWR)’s EPS CAGR of 16.8% over the same period. Its latest dividend increase of 27.0% in September 2012 was above the five-year average. However, going forward, the company’s target five-year CAGR for dividend growth is 5%.

For the reference, American States Water has achieved five-year revenue and net income CAGRs of 9% and 14%, respectively. It too operates in a favorable regulatory environment, which provides financial stability and security of its dividend payouts. Its ROE of 12.5% is higher than comparable metrics for its peers mentioned in this article. As regards its valuation, American States Water Co (NYSE:AWR) is priced at 20.5x forward earnings, above its industry. Last quarter, RenTech’s Jim Simons boosted his small stake in this stock.

Final thoughts

Interestingly, three of the stocks mentioned above are U.S. water utilities. This is a space that doesn’t receive much—if any—excitement in the blogosphere, but with the track record this “fab five” has, it’s difficult for income investors not to pay attention. American States, Northwest Natural, SJW Corp. (NYSE:SJW), ABM and California Water Service Group (NYSE:CWT) each offer safe dividend growth plays for income investors; however, they generally carry a premium for their yield “safety” and inflation-beating dividend growth. Still, this is a group of stocks worth watching, that’s for sure.

Disclosure: none

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