Tags: water stocks | dividends
OPINION

3 Water Stocks for Long-Term Dividends

3 Water Stocks for Long-Term Dividends

A view of Pikes Peak, as seen from Cyrstal Resevoir (Dreamstime)

Bob Ciura By Monday, 11 March 2024 03:20 PM EDT Current | Bio | Archive

Water is necessity for life, making it one of the most valuable resources on the planet. Demand for water is always present, and will only rise over time due to population growth.

Because of this, the companies that are exposed to water have a wide moat around their businesses, which allows for these names to see highly consistent results. In turn, this paves the way for dividends.

This article will examine three of our favorite water stocks that have strong dividends, competitive advantages, and long-term growth potential.

American Water Works (AWK)

American Water Works is the largest and most geographically diverse, publicly traded water and wastewater utility company in the United States, as measured by both operating revenues and population served. The company provides drinking water, wastewater, and other related services to over 15 million people in 46 states. Its regulated business includes 53,700 miles of pipe, 490 water treatment plants, 175 wastewater facilities, 1200 wells, and 74 dams. The company also provides water and related services to the U.S. government and U.S. military through 17 installations.

On February 14th, 2024, American Water Works reported its Q4 and full-year results for the period ending December 31st, 2023. For the quarter, revenues rose by 10.9% year-over-year to $1.03 billion. The increase in revenues was primarily a result of authorized revenue increases from completed general rate cases and infrastructure proceedings for the recovery of incremental capital and acquisition investments. EPS came in at $0.88 compared to $0.81 last year, driven by a 16.3% increase in net income due to higher revenues, partially offset by a higher share count.

The company now has general rate cases in progress in eight jurisdictions and has filed for infrastructure surcharges in one jurisdiction, reflecting a total annualized revenue request of approximately $670 million. For FY2024, management raised their forecast, expecting EPS to land between $5.20 and $5.30, up from $5.10 to $5.20. They also affirmed their long-term EPS growth outlook of between 7% and 9%.

Management continues to expect EPS to grow by approximately 7%-9% annually through 2029, powered by its regulated investment CAPEX, regulated acquisitions, and military services.

A.O. Smith (AOS)

A.O. Smith is a leading manufacturer of residential and commercial water heaters, boilers and water treatment products. A.O. Smith generates two-thirds of its sales in North America, and most of the rest in China, whereas the rest of the world is just a small market for A.O. Smith.

A.O. Smith has raised its dividend for 30 years in a row, making the company a Dividend Aristocrat.

The company reported its fourth quarter earnings results on January 30. The company generated revenues of $990 million during the quarter, which represents an increase of 6% compared to the prior year’s quarter. A.O. Smith’s revenues were up by 7% in North America, while revenues saw a smaller increase in the rest of the world.

A.O. Smith generated earnings-per-share of $0.97 during the fourth quarter, which was up 13% on a year over year basis. This was possible thanks to a combination of higher revenues, higher margins, and buybacks that reduced the share count.

A.O. Smith has announced its guidance for 2024. The company is forecasting earnings-per-share in a range of $3.90 to $4.15, which reflects that management expects earnings-per-share to grow meaningfully this year. At the midpoint of the guidance range, A.O. Smith’s earnings-per-share would be up 6% versus the earnings-per-share A.O. Smith generated last year. A.O. Smith is forecasting that revenue will increase by 3% to 5% this year.

Thanks to a healthy housing market in the U.S., the company has enjoyed consistent growth in the domestic market throughout most of the last decade. A.O. Smith’s sales performance was even more impressive in China, where sales have grown by ~20% per year on average during the last decade. China’s huge population, its robust GDP growth, and the booming of its middle class are major tailwinds in this important market.

SJW Group (SJW)

SJW Group produces, purchases, stores, purifies, and distributes water to its customers. The company has a presence in a variety of high growth areas, including Silicon Valley and the area north of San Antonio, Texas. SJW Group also has a small real estate division that owns and develops properties for residential and warehouse customers in California and Tennessee.

On January 25th, 2024, SJW Group announced that it was raising its quarterly dividend 5.3% to $0.40, extending the company’s dividend growth streak to 56 consecutive years. SJW Group is a member of the Dividend Kings index.

On February 22nd, 2024, SJW Group announced fourth quarter and full year results for the period ending December 31st, 2023. For the quarter, revenue declined slightly by 0.1% to $171.3 million, beating estimates by $10.3 million. Earnings-per-share of $0.59 was in-line with expectations. For the year, revenue grew 8% to $670.4 million while earnings-per-share of $2.68 compared to $2.43 in 2022. The decline in earnings-per-share was primarily related to a delayed decision in the company’s general rate case in California that caused SJW Group to recognize a full year of revenue in the fourth quarter of 2022.

SJW Group provided an outlook for 2024 as well, with the company expecting earnings-per-share in a range of $2.68 to $2.78 for the year. At the midpoint, this would be a 1.9% increase from the prior year.

We continue to forecast that the SJW Group will grow earnings at the average growth rate of 8.0% through 2029 due to revenue growth and rate increases.
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Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.

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BobCiura
Water is necessity for life, making it one of the most valuable resources on the planet. Demand for water is always present, and will only rise over time due to population growth.
water stocks, dividends
958
2024-20-11
Monday, 11 March 2024 03:20 PM
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