Aqua America (NYSE:WTR) is a stock worth looking at from both a growth and dividend side. We think that the stock is attractive at its current price of around $22 a share, with only modest downside from here. For those who want an above average yield with the potential for growth, Aqua America could be a very nice fit for your portfolio.
Growth: Aqua has been consecutively increasing profits and revenues since 2006 and has a five-year compounded growth rate of 6.3% and 7.9%, respectively. The enterprise value of Aqua is $ 4.77 billion vs. a $3.1 billion book value and market cap, independently -- so even with a forward P/E of 21, we feel that stock is extremely undervalued. Management, in particular Nick DeBenedictis, has made excellent strategic acquisitions during his tenure as CEO of smaller niche companies. Aqua made 19 purchases in 2010. Clean fresh water is considered by many to be the next great commodity— we feel that this fact alone is the reason why this stock has more upside of around 10% - 20% annually.
Dividend: Aqua America has been raising its dividend 4 cents every year since 2006, which equated to a 7% increase last year. We expect this trend to keep continuing for the foreseeable future. Aqua America has had 65 years of consecutive dividends with 20 cash increases in the last 19 years.
Aqua is still at the end of the day a utility and does sit on $1.65 billion in debt, but the company generates enough cash flow from operations to service its debt. Free cash flow from operations rose 2% from 2009 to 2010. Even with that, we think that it wouldn’t be impossible to see Aqua America in the $28-30 range by the end of 2013.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.