There are many different companies that can give investors exposure to the water business; here, we continue a review of the 5 best water stocks by Nikolaos Sismanis, contributing editor at Sure Dividend.
With a dividend yield of 1.6%, California Water Service (CWT) is the 4th-largest publicly-owned water utility in the United States. The company has six subsidiaries that provide water to about 2 million people, mainly in California, with some additional operations in Washington, New Mexico, and Hawaii.
California Water Service has increased its dividend for more than 50 consecutive years, which makes the company a Dividend King.
Read Part 1 of this special report here.
Read Part 2 of this special report here.
California Water Service reported its first-quarter earnings results on April 28th. Quarterly revenues were $147.7 million, 17.6% versus the comparable period last year. Revenue growth came from rate increases that were negotiated throughout the last year and that were justified by higher water costs for the company.
The company’s past and estimated regulated rate base increases can be seen in the graph below:
Source: Investor Presentation
Over the past decade, California Water Service has grown its earnings-per-share at an average annual rate of 4%, which is a decent pace of earnings growth for a utility. We believe that California Water Service’s earnings-per-share will continue to grow at a mid-single digits rate going forward, as it did in the past.
Earnings growth, in the long run, should be achievable thanks to the rate hikes that are regularly approved by relevant authorities/regulators, as well as organic growth such as population growth and increased water consumption.
California Water Service has paid out between 50% and 70% of its net profits throughout most of the last decade. Overall, the dividend payout ratio has declined slightly over that time frame, as the company’s dividend growth rate was lower than its earnings-per-share growth rate.
The predictable nature of the company’s earnings, combined with a payout ratio that is not overly high, means that the dividend looks very safe. Its 54-year record of annual dividend increases is certainly a testament to that.
