3 Water Utilities to Buy That Outperformed Industry YTD
Nonstop services amid the pandemic and investments to retain infrastructure lead utilities like California Water (CWT), Middlesex Water (MSEX) and Ame...
The stocks belonging to the Zacks Utility - Water Supply industry continued to provide 24X7 services to its consumers despite the devastating impact of COVID-19. Even in situations when customers failed to pay the utility bills on time, these companies delivered uninterrupted services. Also, the utility players undertook infrastructure upgrade and maintenance work to enhance the reliability of their services.
The U.S. water infrastructure, which includes more than 2.2 million miles of pipelines, is aging and needs major repair and maintenance to provide proper services. Per the findings of the American Society of Civil Engineers, water main breaks occur every two minutes in the United States due to wearing away of the existing water infrastructure. Pipeline cracks induce wastage of 6 billion gallons of potable water each day and add to the loss of water utility operators. Along with increasing the cost of water services, it exposes water to the possibility of contamination.
Per the U.S. Environmental Protection Agency, an estimated $750-billion investment is necessary to sustain and expand drinking water as well as wastewater services to meet demand over the next 20 years.
Regulated water industry is highly fragmented, creating operational challenges in meeting the funding requirement for upgrades and maintenance work as small service providers might not have the required financial strength to sponsor costly infrastructure upgrades. Large water utilities are quite active in making acquisitions to extend operations and essentially invest in enhancing the acquired properties.
Being capital-intensive in nature, this industry requires constant investment to renovate and preserve the weathered water and wastewater infrastructure. The Federal Reserve’s decision to keep interest rates unchanged will help the utilities procure funds at a cheaper rate for their infrastructure projects or inorganic activities.
We focus on three solid-ranked water utility stocks that have outperformed the industry in the year-to-date period. These stocks routinely pay out dividends to add shareholder value.
3 Utility Stocks
The industry has a strong Zacks Rank of 118 of 253 industries (top 47%). We picked a few stocks that have returned more than the industry’s 14.2% growth so far this year. These stocks carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
These companies make regular dividend payments to their shareholders. We added some more criteria for the selection of utilities from our proprietary Zacks Stock Screener.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
California Water Service Group CWT is the third largest investor-owned water utility in the United States. Along with its units, it provides regulated and non-regulated high-quality water and wastewater services to nearly 2 million people in 100 communities. The company expects its 2021 capex estimates within the $270-$300 million range.
YTD Return =18.4%
Dividend Yield =1.44%
Average Earnings Surprise (Last Four Quarters) = 15.36%
Estimate Movement =The Zacks Consensus Estimate for 2021 earnings has moved 2.9% north to $1.79 in the past 60 days.
Middlesex Water Company MSEX is a water utility based in the U.S. state of New Jersey. It provides high quality water services for residential, commercial, industrial and fire protection purposes. The utility offers a complete range of water, wastewater utility and related services. The company has plans to invest $314 million in the 2021-2023 time period to strengthen its water and wastewater infrastructure.
YTD Return =57.5%
Dividend Yield =0.96%
Average Earnings Surprise (Last Four Quarters) = 0.51%
Estimate Movement =The Zacks Consensus Estimate for 2021 earnings has moved 3.7% north to $2.27 in the past 60 days.
American States Water Company AWR along with its subsidiaries provides fresh water, wastewater services and electricity to its customers in the United States. The company principally works through its two major units, namely Golden State Water Company and American States Utility Services. The company expects to spend in the range of $125-$135 million for the current year on regulated utilities.
YTD Return =17.1%
Dividend Yield =1.57%
Average Earnings Surprise (Last Four Quarters) = 4.35%
Estimate Movement =The Zacks Consensus Estimate for 2021 earnings has been revised 0.4% upward to $2.48 in the past 60 days.
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