3 Water Utility Stock For Long Term Dividend Growth

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People always need clean water, regardless of the state of the economy. In turn, many top water stocks have regular customer bases and very consistent revenues and earnings.

This great stability paves the way for water stocks to pay growing dividends to shareholders.

Many water stocks have very long histories of increasing dividends. Some have even reached Dividend Champion status, which means they have raised dividends for at least 25 consecutive years.

This article will discuss 3 top dividend-paying water stocks.

Water Stock: A.O. Smith (AOS)

A.O. Smith is a leading manufacturer of residential and commercial water heaters, boilers and water treatment products. A.O. Smith generates the majority of its sales in North America, with the remainder from the rest of the world. It has category-leading brands across its various geographic markets. The company is on the Dividend Aristocrats list having increased its dividend for 30 years.

A.O. Smith reported its first-quarter earnings results on April 25. The company generated revenues of $980 million during the quarter, which represents an increase of 1% compared to the prior year’s quarter. A.O. Smith’s revenues were up by 2% in North America. The international business saw appealing growth in local currencies, but reported growth was impacted by forex rate movements.

A.O. Smith generated earnings-per-share of $1.00 during the first quarter, which was up 6% on a year over year basis. This was possible thanks to a combination of higher revenues, higher margins, and buybacks that reduced the share count.

A.O. Smith has reiterated its guidance for 2024. The company is forecasting earnings-per-share in a range of $3.90 to $4.15, which reflects that management expects earnings-per-share to grow meaningfully this year. At the midpoint of the guidance range, A.O. Smith’s earnings-per-share would be up 6% versus last year.

Thanks to a healthy housing market in the U.S., the company has enjoyed consistent growth in the domestic market throughout most of the last decade. A.O. Smith’s sales performance was even more impressive in China, where sales have grown by ~20% per year on average during the last decade.

China’s huge population, its robust GDP growth, and the booming of its middle class are major tailwinds in this important market. In addition, thanks to the severe pollution of the country, the demand for air purifiers should remain strong as well.


Water Stock: Pentair plc (PNR)

Pentair operates as a pure–play water solutions company with 3 segments: Aquatic Systems, Filtration Solutions, and Flow Technologies. Pentair was founded in 1966 and has increased its dividend for more than 40 years in a row, when adjusted for spin–offs.

Pentair reported its first quarter earnings results on April 23. The company was able to generate revenues of $1.0 billion during the quarter, which was 3% less than the company’s revenues during the previous year’s quarter, a result that missed estimates slightly.

Core sales, which excludes the impact of currency rate movements, acquisitions, and dispossessions, were down 1% year over year as well, which was better than the core revenue growth rate during the previous quarter when core sales had declined by 2%.

Pentair recorded earnings-per-share of $0.94 for the first quarter, which was up 3% year-over-year. Pentair’s earnings-per-share beat the analyst consensus by $0.04. Pentair reiterated its guidance for the current year during the earnings report. For fiscal 2024, Pentair is forecasting earnings-per-share of around $4.20.

Company management believes that a long-term earnings-per-share growth rate of 10% is possible, but we are a bit more conservative. The company should be able to achieve this growth through a combination of rising revenues, which will be possible thanks to organic growth and acquisitions, and through tailwinds from margin expansion and share repurchases

PNR has a projected dividend payout ratio of approximately 22% for 2024. The payout ratio is not very high, which makes us believe that the dividend looks quite safe. PNR has increased its dividend for 49 consecutive years.


Water Stock: American States Water (AWK)

American States Water is a utility company with two business units: Utilities (primarily water, some electricity) and Services (wastewater services on several US military bases). American States Water is based in California, where it operates its utilities business. The company’s services unit spans several US states.

On May 1st, 2024, American Water Works reported its Q1 results for the period ending March 31st, 2024. For the quarter, revenues rose by 7.8% year-over-year to $1.01 billion. The increase in revenues was primarily a result of authorized revenue increases from completed general rate cases, and infrastructure proceedings for the recovery of incremental capital and acquisition investments. EPS came in at $0.95 compared to $0.91 last year, driven by an 8.8% increase in net income due to higher revenues, partially offset by a higher share count.

The company now has general rate cases in progress in eight jurisdictions and has filed for infrastructure surcharges in one jurisdiction, reflecting a total annualized revenue request of approximately $636 million.

For FY2024, management raised their forecast, expecting EPS to land between $5.20 and $5.30, up from $5.10 to $5.20. They also affirmed their long-term EPS growth outlook of between 7% and 9%.

American Water’s dividend can be viewed as extremely safe. The payout ratio stands at 54%, and the company has a very clear and predictable path towards growing its EPS. Its cash flows are of high quality due to water being an essential commodity, with much-anticipated consumption rates and robust pricing power. AWK stock currently yields 2.4%.


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