Water management is not a very exciting subject. Unless a toxic wastewater pond overflows or a city’s drinking water is contaminated, we don’t hear much about the business of getting potable water into our homes or taking it away, notes Gordon Pape, editor of Internet Wealth Builder.
In fact, it’s a huge business and growing at a steady rate of 6.5% annually, according to a report published last year by London-based Meticulous Research. In it, the British firm estimates that the global market for water and wastewater treatment could be worth US$211.3 billion by 2025.
Here are two ways you can invest in the water industry.
Xylem Inc. (XYL) is based in Rye Brook, New York. It is a leading global water technology provider, enabling customers to transport, treat, test, and efficiently use water in public utility, residential, and commercial building services, and in industrial and agricultural settings.
It makes pumps and control systems used in management of wastewater and the collection and distribution of drinking water. It also offers smart metering, network technologies, and advanced data analytics for water, gas, and electric utilities. Xylem does business in more than 150 countries.
The company’s fourth-quarter and fiscal 2020 financial results beat expectations, despite the economic impact of the pandemic. The company announced an 8% increase in the quarterly dividend, the 10th year in a row it has hiked its payout. The new rate is $0.28 per share ($1.12 per year) for a yield of 1%.
The stock has been a strong performer over the past year, almost doubling from its 52-week low of $56.63 (figures in U.S. dollars). Xylem is forecasting a strong year in 2021, with revenue up 6-8% to between $5.16 and $5.26 billion. It is forecasting adjusted earnings per share of between $2.35 and $2.60.
American Water Works Company (AWK), which traces its history back to 1886, is the largest and most geographically diverse U.S. publicly traded water and wastewater utility.
It employs more than 7,000 people who provide regulated and market-based drinking water, wastewater and other related services to more than 15 million consumers in 46 states.
The business involves the ownership of water and wastewater utilities that provide services to residential, commercial, and industrial customers, treating and delivering more than 1 billion gallons of water per day.
Fourth-quarter and year-end results for 2020 were impressive. Operating revenue for the final quarter was $923 million, up from $902 million in the prior year. Net income attributable to common shareholders was $145 million ($0.80 per share, fully diluted), a healthy increase from $98 million ($0.54 per share).
For the full year, AWK reported revenue of almost $3.8 billion, up from about $3.6 billion the year before. Net income was $709 billion ($3.91 per share) compared to $621 million ($3.43 per share) in 2019.
The company is projecting 2021 earnings per share of $4.18 to $4.28 and a five-year annual compound growth rate of 7-10%. The stock pays a quarterly dividend of $0.55 a share ($2.20 annually) to yield 1.4%.
The stock has had a choppy year, but the overall trend has been up. The shares did not drop below $100, even during the market plunge of March 2020. We are adding AWK to our Recommended List.