In this series of articles, I will be reviewing a majority of the Dividend Contender stocks and ranking them in terms of which stocks I think will eventually become Dividend Champions and provide substantial long-term returns to investors and which ones I believe are less likely to provide positive long-term returns.
More information on Dividend Champions and Dividend Contenders can be found here (maintained by Dave Fish).
For Part 7 of this series, I will be taking a look at the Water stocks within the Utility industry. These stocks include:
Over the past five years, York Water has seen the highest revenue growth out of these three stocks.
In terms of earnings, it is Aqua America that has seen significantly higher growth over the past five years.
Based on trailing P/E ratios, Aqua America is the most attractively priced of the three stocks, while York Water is the least attractively priced.
Looking at forward P/E ratios, Artesian Resources is the most attractively priced, while York Water remains the least attractively priced.
WTR PE Ratio (Forward) data by YCharts
Dividend Yield and Payout Ratio
Artesian Resources currently has the highest dividend yield at 3.85%. York Water has a current yield of 2.62% and Aqua America has a yield of 2.51%.
Looking at the chart below, you can see that both Artesian Resources and York Water both have payout ratios well above 50%, while Aqua America has been able to successfully lower its payout ratio significantly over the past five years to be under 50%.
Returns (Assets, Equity, Invested Capital)
- Aqua America - 4.35%
- York Water - 3.73%
- Artesian Resources - 2.19%
- Aqua America - 14.37%
- York Water - 10.29%
- Artesian Resources - 7.29%
- Aqua America - 7.03%
- York Water - 5.63%
- Artesian Resources - 3.72%
Dividend Growth (past five years)
- Aqua America - 42.24%
- Artesian Resources - 14.84%
- York Water - 11.80%
In its latest quarter, Aqua America reported a 4% increase in revenue and a 9% increase in earnings per share. The company continues to use acquisitions to foster growth. Year to date, the company had completed 13 acquisitions (compared to 9 for the same period last year). Given the high number of acquisitions the company has completed and continues to complete, the fact that Aqua America remains so efficient is even more impressive.
The company was able to see continued growth in revenue and earnings without any rate increases and has several projects in place that should contribute to further growth down the road:
- A two-year agreement with the City of Lake Station in Lake County, Indiana to operate the city's new 2 million-gallon-per-day water treatment plant.
- Invest $375,000 to upgrade Spartan Village distribution pipes, meters and the wastewater plant.
- Plans to invest nearly $2 million over the next couple of years to bring the Ruther Glen, Virginia system into regulatory compliance.
- Completed an agreement with the Southwest Delaware County Municipal Authority to operate and maintain their collection system
In its latest quarter, Artesian Resources displayed even more impressive results with a 27.5% increase in earnings and a 8.4% increase in revenue. Unlike Aqua Water, a portion of Artesian Resources growth was a result of rate increases.
The company should continue decent growth as investments in its infrastructure have positioned the company nicely to be able to support increased demand from current customers, as well as neighboring water utilities when necessary.
In its latest quarter, York Water saw a 10.5% increase in revenue and significant increase in earnings per share as well ($0.23 compared to $0.04 for the same period last year). The increased revenue was a result of both increased rates and growth in customer bases mainly due to acquisitions.
The company announced two additional acquisitions that will continue to help foster continuing growth:
- Purchase of the water assets of The Meadows community in Adams County, Pennsylvania.
- Purchase of the Newberry Farms Mobile Home Park water assets of WTS Properties, LLC in York County, Pennsylvania.
While I think that each of these three companies are solid companies worth consideration as long term buys, I believe that Aqua America is currently the best option for long term investors. The company has shown the highest earnings growth over the past five and ten years, while also displaying the highest dividend growth over the past five and ten years.
Another positive in regards to Aqua America is that, it has been able to limit the degree to which its outstanding shares have risen, better than the other two stocks reviewed in this article.
WTR Shares Outstanding data by YCharts
While increasing its book value substantially over the past several years, Aqua America has been able to keep low debt levels and lower its payout ratio while increasing its dividend consistently and significantly. With the company also offering far greater returns on assets, equity, and invested capital, I believe Aqua America will continue to reward long term shareholders well into the future. And while I don't think any of these stocks will turn into failures, I think Aqua America is the surest bet to becoming a champion.
As always, I suggest individual investors perform their own research before making any investment decisions.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.