My favorite infrastructure stock for 2021 is Mueller Water Products (MWA). Based in Atlanta, GA, the firm provides essential repair and replacement products and services to water-focused businesses all across the country, asserts dividend expert Genia Turanova, editor of Unlimited Income.

Its products are needed for a variety of applications, from municipal water and wastewater facilities to new residential construction to utilities.

It’s a well-diversified company: About two-thirds of the revenue comes from municipalities, about a quarter from new construction, and the rest, just under 10%, from the water needs of natural gas utilities. 

Given that most of MWA’s revenue comes from various municipalities, you’d think the company is vulnerable to growing COVID-related municipal budget pressures. 

Richer, less financially stressed municipalities will certainly improve MWA’s future outlook. But a variety of potential government policies will bolster MWA’s business in the short-term.

These policies range from more stimulus spending to cities and states, to higher Federal budget infrastructure outlays, to adding more munis to the Fed’s list of bonds (debt) to buy.

Plus, low interest rates are already helping, as new municipal bond issuance demands lower yields than it did just a year ago.

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MWA is optimistic about municipal spending for 2021. The company is also well positioned to benefit from utility repair and replacement projects—about two-thirds of its net sales is related to these activities. In the latest quarter, MWA saw some delays in new projects, but no cancellations. 

Meanwhile, residential construction is booming. MWA expects growth in the residential construction end market to help offset anticipated challenges in the project-related portion of the municipal end market.

The stock yields 1.8% (while the S&P 500 yields only 1.6%) and trades at less than 23 times (23x) 2021 expected earnings. This is much cheaper than the market’s 26.7x. I think it’s just a matter of time before the market wakes up to the strong water-industry positioning of MWA and to its relatively cheap valuation.  

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