Utility stocks are common for risk averse and/or dividend investors as they offer safe and steady revenue streams, but I feel that utilities should be a part of any investor's portfolio. In this article I will list and review two water utilities that I feel are solid buys for long term investors. In looking at why I find these stocks attractive, I will be reviewing each stock's history, stock price movement, current valuation, financials, earnings, dividend, and company outlook.
American States Water Company (AWR) provides water and electric utility services to residential and commercial customers in several communities and counties throughout California. AWR was founded in 1929 and is headquartered in San Dimas, California.
|Profit Margin Quarterly||13.76%|
|Return on Assets||4.59%|
|Return on Equity||13.07%|
|Return on Invested Capital||7.37%|
|Debt to Equity Ratio||0.72|
|Revenue Per Share Quarterly||3.12|
|Revenue Quarterly Year Over Year Growth||5.34%|
Current Valuation and Recent Trading Activity
AWR has a price to earnings value of 17.18x and a price to book value of 2.17x with earnings per share of $1.52. AWR closed Wednesday at $26.11, $6.97 shy of its 52-week high and $5.79 higher than its 52-week low.
Recently, as of September 3rd, a 2-for-1 stock split went into effect for AWR.
For Q2, AWR reported earnings per share of $0.85 per share. This was 6 cents higher than the same period last year and 1 cent higher than the anticipated estimate.
As you can see from looking at the chart above, AWR's earnings growth is on the rise.
AWR recently increased its quarterly dividend 14.1% to $0.405 per share ($0.2025 effective with stock split). This is pretty standard as ARW has a good history of raising its dividend significantly on a yearly basis having paid dividends since 1931 and having raised them each year since 1954.
AWR's dividend currently yields just over 3% and with a payout ratio under 50%, the chances of continued growth remains very likely.
AWR's future looks solid. The company has increased investment in its existing infrastructure and is also expanding its operations. Back in June, AWR announced plans to acquire Rural Water Company. Around the same time, AWR was given governmental approval for new rates that will improve its gross margin and allow further investments. I believe that AWR will reward long term shareholders not only with a safe and growing dividend, but also with price appreciation as the company increases its revenue and earnings through its expansion and improved infrastructure. Because of this I recommend AWR as a buy for long term investors.
California Water Service Group (CWT) produces, purchases, stores, purifies, distributes water for domestic, industrial, public, irrigation, and fire protection uses. CWT provides these services for areas of California, Washington, New Mexico, and Hawaii. California Water Service Group was founded in 1926 and is headquartered in San Jose, California.
|Profit Margin Quarterly||8.74%|
|Return on Assets||2.35%|
|Return on Equity||9.26%|
|Return on Invested Capital||4.35%|
|Debt to Equity Ratio||0.88|
|Revenue Per Share Quarterly||3.24|
|Revenue Quarterly Year Over Year Growth||7.66%|
CWT has seen steady increases in both revenue and profit over the past several years. The chart below displays CWT's revenue over the past five years.
Current Valuation and Recent Trading Activity
CWT has a price to earnings value of 18.07x and a price to book value of 1.61x with earnings per share of $1.08. CWT closed Wednesday at $19.51, $2.83 shy of its 52-week high and $2.67 higher than its 52-week low.
For Q2, CWT reported earnings per share of $0.28. This was in line with estimates but 3 cents shy of the same period last year. CWT's earnings growth has been negative this year, but the company still has a 8% earnings growth rate over the last five years.
Just like AWR, CWT's long term earnings growth remains positive.
CWT currently pays a $0.16 quarterly dividend (yielding 3.29%) with a payout ratio just under 60%. The company has a long history of paying and raising its dividend.
In discussing Q2 results, CWT's President explained how $100 invested in CWT in 1996 would have a 425% return (with dividends reinvested) compared to a 275% return in the S&P. I believe that CWT is in position to see future returns that are similar. As CWT continues to develop new business opportunities, I feel that increases in revenues and earnings will follow. With CWT's history of commitment to returning shareholder value, I consider CWT a buy for long term investors at its current price.
Utilities may be considered boring stocks to some investors, but that doesn't mean they don't have a place in every investor's portfolio. Whether you are talking about electricity, gas, or water, these are products that everyone needs and buys no matter what the current economic condition is. Because of this, utility stocks are a great way to add safety to your portfolio.
I feel that the two stocks outlined above are both well run companies that will return solid growth to investors over the long run. Because both stocks are reasonably priced, have solid histories of revenue, earnings, and dividend growth, and have made strategic decisions to improve its operations, I consider both companies to be solid buys for long term investors, especially those who focus on dividend stocks.