This the first in a series of articles that will take a look at the dividend Kings, companies that have paid an increasing dividend for 50 or more years. I was surprised to find all kinds of companies in the list Johnson and Johnson (NYSE:JNJ) a large cap and small companies like the first to be reviewed here American States Water Co. (NYSE:AWR) a mid cap company. This article is about American States Water Co. and why it's a dividend growth investment that has increased its dividend for 61 years making it a dividend King. American States Water Company is a holding company. The Company is the parent company of Golden State Water Company (GSWC) and American States Utility Services, Inc. (ASUS), as well as various subsidiaries of ASUS. American States Water Co. is being reviewed using The Good Business Portfolio guidelines. Fundamentals of American States Water Co. will be looked at in the following topics, The Good Business Portfolio Guidelines, Total Return and Yearly Dividend, Last Quarter's Earnings, Company Business Overview, and Takeaways and Recent Portfolio Changes.
Good Business Portfolio Guidelines
American States Water Co. passes 8 of 10 Good Business Portfolio Guidelines. These guidelines are only used to filter companies to be considered in the portfolio. For a complete set of the guidelines, please see my article "The Good Business Portfolio: All 24 Positions." These guidelines provide me with a balanced portfolio of income, defensive, momentum, total return, and growing companies that keeps me ahead of the Dow average.
American States Water Co. is a mid-cap company with a capitalization of $1.5 billion. The size of American States Water Co. steady cash flow of $61.0 Million from its water utility business allows it to expand its business and continue upgrades of its infrastructure.
American States Water Co. has a dividend yield of 2.40% which is about average for the market. The dividend has been increased for 61 years and its dividend is very safe. American States Water Co. is therefore a good choice for the dividend growth investor. After paying the average dividend there is still cash remaining for investment and business expansion.
American States Water Co. Cash flow is good at $61.0 Million which leaves enough cash after paying its dividend for good business expansion.
I also require my growth rate going forward to be able to cover my yearly expenses. My dividends provide 3.1% of the portfolio as income and I need 1.9% capital gain in addition for a yearly distribution of 5%. American States Water Co. has a three-year dividend growth rate of 5.7% above my overall requirement. Looking back five years $10,000 invested five years ago would now be worth $15,000 today (from Thomson Reuters). This makes American States Water Co. a fair investment for the dividend growth investor who is risk adverse.
For American States Water Co. Thomson Reuters has a reduce rating with a price target of $39.00. This makes American States Water Co. fairly priced at present. In the long term American States Water Co. good average dividend growth and its slowly growing business in the water utility business is a good choice for the dividend growth investor.
Total Return and Yearly Dividend
The Good Business Portfolio Guidelines are just a screen to start with and not absolute rules. When I look at a company, the total return is a key parameter to see if it fits the objective of The Good Business Portfolio. American States Water Co. had much more total return than the Dow baseline in my 40.5 month test period. I chose the 40.5 month test period (starting January 1, 2013) because it includes the great year of 2013, the moderate year of 2014, the small loss year of 2015 and the slightly positive year of 2016 YTD to see how the company does in good and bad markets. This well above average total return for American States Water Co. makes it appropriate for the growth investor and the dividend income investor considering American States Water Co. with its safe and growing dividend. The dividend is about average at 2.40% and has been increased for 61 years making the company a dividend King.
DOW's 40.5 month total return baseline is 36.82%
40.5 Month total return
Difference from DOW baseline
Yearly Dividend percentage
American States Water Co.
Last Quarter's Earnings
For the last quarter American States Water Co. reported earnings on May 4, 2016 that missed expected earnings at $0.28 compared to last year at $0.32 and expected at $0.32. Revenue missed expected by $11.38 Million and total revenue decreased by 7.4% year over year to $93.5 Million. This was a poor report showing the result of decreased revenues and added expenses. This leaves enough cash remaining after paying the $0.224 dividend for expansion. Earnings for the next quarter will be released in early August and are expected to at $0.44/share compared to last year at $0.41/share. Thomson Reuters estimated yearly 2016 earnings at $1.65 - $1.69/share. The regulatory authorities have still not fully completed their rate review for the period 2016-2018 but the rates are expected to fully cover the companies expenses and dividends.
Company Business Overview
American States Water Company is a holding company. The Company is the parent company of Golden State Water Company (GSWC) and American States Utility Services, Inc. (ASUS), as well as various subsidiaries of ASUS. The Company's segments include water, electric and contracted services. Within the segments, AWR has two principal business units, water and electric service utility operations, conducted through GSWC, and contracted services conducted through ASUS and its subsidiaries. GSWC is a public utility engaged principally in the purchase, production, distribution and sale of water in approximately 10 counties in the State of California. GSWC also distributes electricity in various San Bernardino County mountain communities in California through its Bear Valley Electric Service division. ASUS operates, maintains and performs construction activities, including renewal and replacement capital work, on water and/or wastewater systems at various United States military bases. American States Water Co. business is a slow and steady growing company that should be considered for the dividend growth investor that is risk adverse. At the last earnings call management said " For the five years ended December 31, 2015, our calendar year dividend has grown at a compound annual growth rate of about a 11%, given American States current low payout ratio compared to our peers and our earnings growth prospects, there is room to grow the dividend in the future.", So management states clearly that the growing dividend will continue.
Takeaways and Recent Portfolio Changes
American States Water Co. is a great choice for the dividend growth investor increasing its dividend for 61 years and with management saying it will continue to grow the dividend in the future. American States Water Co. considering the above average total return compared to the Dow average is also a good choice for the total return investor. The business is growing and American States Water Co. is a stable regulated utility that does not suffer the wild swings of most other companies. The Good Business Portfolio guidelines does not have an open slot right now but will consider American States Water Co. when an open position occurs. If you don't already have a position in the water utilities sector American States Water Co. may be worth a position for your dividend income growth and growth segment of your portfolio and is a risk averse investment.
Bought Some more Omega Healthcare Investors (NYSE:OHI) , now at 3.9% of The Good Business Portfolio. I intend to keep adding to OHI until its 4% of the portfolio a full position and watch it grow. The dividends are being reinvested in shares of OHI. OHI just increased their dividend by $0.01/quarter or 1.8% for a yearly increase of 7.2% if these quarterly increases continue. From the last earnings report May 4, OHI has an adjusted FFO of $0.83 giving it the ability to increase the dividend each quarter for many years to come.
Sold some covered calls on Harley Davidson (NYSE:HOG), sold May 50's June 52.5's and June 50.0's. If the premium gets to 20% of the sold premium price I will buy them back with the hope that HOG goes up so I can sell the calls again in the same month for a Double. On 5/10/2015 bought to cover the HOG May 50's since 80% of the premium has been achieved as an income gain. On 5/12/2015 bought to cover the HOG June 52.5's since 80% of the premium has been achieved as an income gain. If HOG goes up in the next few weeks the calls can again be sold for a double in the same month.
Trimmed Home Depot (NYSE:HD) from 8.7% of the portfolio to 8.2% of the portfolio. HD is a great business but we must not get greedy, money management and portfolio balance are both important.
The Good Business Portfolio generally trims a position when it gets above 8% of the portfolio. Below are the five top positions in The Good Business Portfolio. Johnson and Johnson is 8.7% of the portfolio, Home Depot is 8.2% of portfolio, Boeing (NYSE:BA) is 8.0% of the Portfolio, Altria Group Inc.(NYSE:MO) is 7.2% of the portfolio, and Walt Disney (NYSE:DIS) is 7.0% of the portfolio, therefore HD, JNJ and BA are now in trim position with Altria Group Inc. and Walt Disney getting close. Boeing is going to be pressed to 10% of the portfolio because of it being cash positive on individual 787 plane costs, announced in the fourth quarter earnings call. In the first quarter of 2016 deferred costs were $141 Million and deceasing as the year goes on.
For the total Good Business Portfolio please see my recent article on 2015 fourth-quarter performance for the complete portfolio list and performance. Become a real time follower and you will get each quarters performance after the earnings season is over.
I have written individual articles on CAB, JNJ, EOS, GE, IR, MO, BA, Omega Health Investors and HD that are in The Good Business Portfolio and other companies being evaluated by the portfolio. If you have an interest please look for them in my list of previous articles.
Of course this is not a recommendation to buy or sell and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account and the opinions on the companies are my own.
Disclosure: I am/we are long BA, HD, CAB, JNJ, DIS, MO, OHI, DHR, EOS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.