Top Picks 2016: Aqua America

01/20/2016 7:00 am EST

Focus: UTILITIES

Genia Turanova

Editor, Leeb Income Performance

Our Top Pick for income investing in 2016 is a dividend-paying utility that raised its payout in 2015; it performed well last year but has remained somewhat underappreciated by the market, explains Genia Turanova, editor of Leeb Income Performance.

While it might seem counterintuitive to choose a utility stock as a top pick in a year the market anticipates more Fed tightening, we think the case for Aqua America (WTR) is strong.

Aqua runs a business that provides water and wastewater services, serving approximately three million people in eight states.

For many reasons, water presents a compelling investment case; some even argue that this resource is more valuable than oil.

Whatever the actual dollar cost of water, one thing is certain, water is a daily necessity. We expect the investment case for water and water-related stocks only to grow stronger with time. 

Aqua America is the nation’s second-biggest dedicated water and wastewater utility.

Over the years, the company has been able to grow (aggressively, via acquisitions) at very strong rates for a utility; from 1999 to 2014, its net income grew at a compounded rate of more than 10%.

The company also has financial strength to invest in infrastructure, as it plans to invest about $1 billion in capital improvements over the next three years.

Aqua has been able to benefit from rules in several states (such as Pennsylvania and New Jersey) that allow rate increases based on infrastructure investment.

It has a new CEOs that assumed that position relatively recently. We like Aqua America’s business fundamentals, industry positioning, and its growing dividend.

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