Water related stocks have been among the most consistent performers of the past couple of years, observes Brendan Coffey, CFTe, editor and analyst of SX Greentech Advisor.
Advanced Drainage Systems (WMS) — a favorite income-oriented idea for 2022 — offers the relatively stable profile of water stocks with a growth rate more akin to its greentech cousins in solar and wind.
The Ohio company is one of the largest U.S. makers of conveyance, storage and treatment vessels for stormwater and wastewater — think pipes, leachfield infrastructure and other specialty equipment used by property developers, municipalities and farmers for controlling water.
Advanced Drainage does business with a particularly eco-friendly twist, too — it is the second largest recycler of plastic in the nation, using more than 500 million pounds of recycled plastic polymer to form its products.
Recycled feedstock makes its products less carbon- and energy-intensive than they would be otherwise, and better environmentally than competing concrete and metal products. Plastic’s lightness also makes Advanced Drainage’s pipes and tanks cheaper and easier to transport and install, saving customers money.
The company says durability is unmatched. More than 90% of sales take place in the U.S. which means Advance Drainage benefits from the continuing strength of the economy especially in commercial and residential development. The $55 billion earmarked for water projects in the Biden infrastructure bill provides further tailwinds.
For years, Advanced Drainage benefitted from its focus on recycled feedstock since it costs less than virgin plastic and has less price volatilty. Now that other companies are seeing the ESG benefits to using recycled plastics, supply is getting tighter.
In December, the company took a huge step to locking in supply by buying Jet Polymer Recycling, one of the largest plastic recycling firms in Georgia and Alabama and the key supplier of polymer to Advanced Drainage’s septic tank business.
All told, Advance Drainage Systems should see sales rise more than 20% this year to about $2.6 billion with earnings per share of 94 cents. Since the business went public in 2014 it has paid a dividend every quarter, most recently sending along 11 cents a share to investors, providing a nice combination of income and growth.