Seeking Alpha
Profile| Send Message| ()  

Utilities can be great investment vehicles. Utilities provide electricity, and fuel to heat our homes and cook our food. Americans regard electricity and gas as necessities and anyone who has to forego them for very long knows just how important they are to so many facets of daily life. For exactly this reason, we like them as investments. In the universe of utility providers, perhaps the least attention is paid to the companies that provide the most basic necessity, water.

I’ve selected 10 companies for analysis today. I want to see if they deserve the attention we alluded to earlier. I’ll compare them to a peers, suggest my final picks and tell you why.

American Water Works Company, Inc. (AWK), trading at about $32.09 is a mid cap ($5.63 billion) and the largest company in our group today. AWK’s trailing twelve month price/earnings ratio is 18.28 and the price/earnings growth ratio stands at 2.10. Price to book is 1.31 and return on equity is 7.03%. The debt/equity ratio is 136.08 and the current ratio is 1.07. AWK’s dividend yield is 2.10% and the payout ratio is 51%.

Aqua America, Inc. (WTR) is also a mid cap ($3.05 billion) and is trading at about $22.02 per share. WTR’s trailing twelve month price/earnings ratio is 22.22 and the price/earnings growth ratio stands at 2.88. Price to book is 2.50 and return on equity is 12.42%. The debt/equity ratio is 131.99 and the current ratio is 0.78. WTR’s dividend yield is 2.90% and the payout ratio is 62%.

AWK has an acceptable price/earnings ratio, but the price/earnings growth ratio is a bit weak. Offsetting this is AWK’s aggressive acquisition strategy which unfortunately seems to be driving debt. However the company has a good price to book and the current ratio is where it should be. If the business strategy plays out, they will be favorably postured to handle long term debt. The dividend looks sustainable and in spite of WTR’s superior dividend I believe the fundamentals favor AWK.

American States Water Company (AWR), trading at about $35.21 is a small cap ($659.66 million). American’s trailing twelve month price/earnings ratio is 13.77 and the price/earnings growth ratio stands at 2.09. Price to book is 1.61 and return on equity is 11.21%. The debt/equity ratio is 85.24 and the current ratio is 1.38. AWR’s dividend yield is 3.20 and the payout ratio is 42%.

York Water Co. (YORW) is a small cap ($223.62 million) and trades at about $17.51 per share. York’s trailing twelve month price/earnings ratio is 24.63 and the price/earnings growth ratio stands at 4.85. Price to book is 2.38 and return on equity is 9.78%. The debt/equity ratio is 92.93 and the current ratio is 2.13. YORW’s dividend yield is 2.10% and the payout ratio is 73%.

AWR wins this match-up hands down across all the fundamentals, especially dividend yield and payout ratio. AWR is the clear choice.

SJW Corp. (SJW) is trading at about $24.07. It is a small cap ($447.51 million). SJW’s trailing twelve month price/earnings ratio is 20.23 and the price/earnings growth ratio stands at 1.97. Price to book is 1.73 and return on equity is 8.64%. The debt/equity ratio is 134.87 and the current ratio is 2.31. SJW’s dividend yield is 2.90% and the payout ratio is 58%.

Pennichuck Corp. (PNNW) is a small cap ($134.94 million) trading at about $28.82 per share. Pennichuck’s trailing twelve month price/earnings ratio is 32.09 and the price/earnings growth ratio is unavailable. Price to book is 2.41 and return on equity is 7.76%. The debt/equity ratio is 107.90 and the current ratio is 2.76. PNNW’s dividend yield is 2.60% and the payout ratio is 80%.

In this match-up, my scorecard shows SJW as the winner. The price is cheap relative to Pennichuck and the key fundamentals are superior overall.

California Water Services Group (CWT), trading at about $18.35 per share is a small cap ($767.34 million). CWT’s trailing twelve month price/earnings ratio is 18.82 and the price/earnings growth ratio stands at 1.41. Price to book is 1.64 and return on equity is 9.14%. The debt/equity ratio is 114.48 and the current ratio is 0.97. CWT’s dividend yield is 3.50% and the payout ratio is 63%.

Connecticut Water Service Inc. (CTWS) is a small cap ($249.50 million) trading at about $28.54 per share. Connecticut’s trailing twelve month price/earnings ratio is 22.28 and the price/earnings growth ratio stands at 4.90. Price to book is 2.12 and return on equity is 9.69%. The debt/equity ratio is 119.59 and the current ratio is 0.61. CTWS’s dividend yield is 3.30% and the payout ratio is 73%.

I’m coming down on the side of CWT in this match-up on the basis of price to book, price/earnings growth ration and payout ratio.

Artesian Resources Corp. (ARTNA), trading at about $18.81, is a small cap ($161.62 million). ARTNA’s trailing twelve month price/earnings ratio is 23.45 and the price/earnings growth ratio stands at 4.97. Price to book is 1.46 and return on equity is 6.12%. The debt/equity ratio is 108.75 and the current ratio is 0.51. ARTNA’s dividend yield is 4.10% and the payout ratio is 96%.

Middlesex Water Co. (MSEX) is a small cap ($290.64 million), trading at about $18.59 per share. Middlesex’s trailing twelve month price/earnings ratio is 21.12 and the price/earnings growth ratio stands at 7.83. Price to book is 1.66 and return on equity is 7.84%. The debt/equity ratio is 89.29 and the current ratio is 0.57. MSEX’s dividend yield is 3.90% and the payout ratio is 83%.

Frankly, I can’t fathom owning either of these and would rather stick with high-dividend "sister" utilities in telecom. In my opinion, neither have a sustainable dividend. Moreover, the current ratios are a deep concern.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Income Investors: Analyzing 10 High Yield Water Utilities For Buy Ideas