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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Aqua America Inc (NYSE:WTR), currently yielding 2.5%, is a water utility to consider. It’s a $4.2 billion market cap providing water and wastewater services to customers in PA, VA, NC, OH, IL, NJ, IN, and TX. It divested most of its Florida businesses earlier this year, and is selling the remaining ones.  It also supplies water to energy producers for hydraulic fracturing in the Marcellus Shale, a profitable niche.

These two utilities have the best three-year average EPS growth rates and ROEs, and Aqua’s profit margin is tops in the industry.

I called these the best two water utility stocks in a July 2012 article, but while I still think they’re standouts, American States Water Co (NYSE:AWR)’ sky-high valuation on a 5-year PEG basis precludes me from making such a call again. It regularly beats earnings estimates, so there’s reason to believe estimates are too low. However, for many investors, Aqua America Inc (NYSE:WTR) is likely the better way to go.

I’ve long favored American States Water Co (NYSE:AWR), in part, because its territory includes areas where agricultural and other demand should continue to increase due to more frequent and severe drought conditions. Using the same reasoning, investors might consider California Water Service Group (NYSE:CWT). It supplies water to California, New Mexico, Hawaii, and Washington.  Additionally, it’s increased its dividend for 47 consecutive years. SJW also services the California market, however it owns and leases commercial buildings too, so it’s not for investors who want a pure-play.

Industry biggie American Water Works? It’s had a great run, but it’s had growth issues for a few years now. The most conservative investors might consider it; however, select smaller utilities likely have better growth potential.

Foolish bottom line
Dividend-paying stock have significantly outperformed the market over the long-term and make attractive core holdings for many investors. More specifically, the water utility industry is gushing with attractive features, with Aqua America Inc (NYSE:WTR) spouting top metrics.

The article The Power of Dividends in 2 Charts: Water Utilities originally appeared on and is written by BA McKenna.

BA McKenna has no position in any stocks mentioned. The Motley Fool recommends Aqua America and California Water Service Group.

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