While water stocks were considered expensive a few years ago, buoyed by low interest rates and investors’ willingness to pay a premium for their reliable income and growth prospects, the recent rise in interest rates has shifted the landscape.
These days, higher borrowing costs have tempered market appeal in stocks that investors tend to hold for their safe income prospects, including water stocks. Investors have mainly shifted to fixed-income investments with improved risk/reward ratios. Thus, share prices of water stocks have declined notably, and their valuations have contracted to fairer levels. In this article, we will explore the three best water stocks to buy in June of 2024.
Middlesex Water (MSEX)
Established in 1897, Middlesex Water (NASDAQ:MSEX) is one of the largest regulated water utility industry players. It provides essential water and wastewater services to New Jersey, Delaware and Pennsylvania customers. Due to water’s vital role in these areas, the company’s revenues have steadily risen over the years. For context, in 1994, Middlesex generated $36.1 million in revenue. By last year, this figure had risen to $166.3 million.
Middlesex has pursued growth both organically and through M&A. Organically, it remains committed to upgrading and expanding its facilities and network to serve the increasing demand driven by a growing population and higher water consumption volumes. In terms of M&A, notable acquisitions in recent years include Water Systems in 2019, which added about 1,000 customers to its network at the time and improved operating efficiencies.
To underscore the strength of Middlesex’s cash flows, supported by the inherent qualities in regulated water utilities, the company has increased its dividend for 51 successive years. This achievement places Middlesex in the elite group of stocks known as the Dividend Kings. With over half a century of consistent dividend growth, Middlesex has undoubtedly demonstrated its resilience and ability to thrive in virtually any market environment.
York Water (YORW)
If you thought Middlesex Water had a long history, wait until you learn that York Water (NASDAQ:YORW), established in 1816, is even older. In fact, Yorw Water is by far the oldest investor-owned utility in America. With a rich history spanning over two centuries, York Water has provided reliable water and wastewater services to customers in south-central Pennsylvania for an impressively long time.
Over the decades, York has managed to grow mainly organically, including growing its customer base and through price increases. In 2023, for instance, its customers grew by 1.5% to 77,893. Regarding rate hikes, the most recent one approved by the Pennsylvania Public Utility Commission (PPUC) occurred last year and anticipated raising the average monthly water bill from $46.49 to $53.06 for residential customers consuming an average of 4,027 gallons.
Furthermore, I can’t exclude York Water’s tremendous dividend growth track record, which illustrates the qualities of the business and the industry overall. The company boasts over 200 years of uninterrupted dividend payments, underscoring its financial soundness and commitment to shareholder returns. York Water has also increased its dividend for 27 consecutive years.
American Water Works (AWK)
Last but not least, American Water Works (NYSE:AWK) is the largest publicly traded water and wastewater utility in the United States. Although its journey to public trading didn’t commence until 2008, its roots trace back to the illustrious year 1886. Today, the company serves approximately 14 million people in 46 states and Ontario, Canada.
The company has grown consistently over the past decade. In particular, over the past 10 years, its revenues have grown at a compound annual growth rate (CAGR) of 4%. That may not sound like a superb growth rate. However, along with cost efficiencies and economies of scale kicking in, American Water Works’ earnings-per-share (EPS) has increased at a CAGR of about 9% over the same period.
The company is mirroring the trajectory of its seasoned peers in dividend growth. Since going public in 2008, American Water Works has raised its dividends each year, totaling 16 consecutive years of increases. With dividends per share growing at a CAGR of 9.8% and ample potential for future growth, AWK stock appears to be a robust choice for those seeking above-average dividend growth prospects in the industry.
On the date of publication, Nikolaos Sismanis did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nikolaos Sismanis is a professional research analyst with five years of experience in the field of equity research and financial modeling. Nikolaos has authored over 1,000 stock-related articles that focus on uncovering deep value opportunities, identifying growth stocks at reasonable valuations, and shining a spotlight on overlooked international equities.