American Water Works is a Strong Buy as Profits Continue to Flow Expectations for strong earnings, an attractive technical outlook, a solid dividend, and perhaps revenue coming from the infrastructure bill makes American Water Works (NYSE:AWK) a solid buy.

American Water Works (NYSE:AWK) will deliver its third-quarter earnings report after the market closes on November 2. The third quarter has historically been the company's strongest quarter and this year appears to be no exception.

The consensus opinion of analysts is for the utility giant to post earnings per share (EPS) of $1.52 cents on revenue of $1.21 billion. And if you put confidence in such things, the whisper number is coming in at $1.56 cents. Those numbers would reflect a 12% increase in revenue and a 10% increase in EPS from the same quarter in 2020.

When I last looked at American Water Works, was sitting at an all-time high. At that time, I noted that buy-and-hold investors had been treated to a 107% stock price gain over the last five years. That is now a 140% gain as of this writing. For comparison, investors who held shares in the Vanguard Utilities ETF (NYSEARCA:VPU) would be sitting on a 38% gain over that same period.

Of course, investors could look at that growth and think that the rally is coming to an end. And AWK stock has had a pullback in the last month. At one point, the stock was down by nearly 11% (10.8%) from its all-time high price of $189.35. However, back in August the relative strength indicator (RSI) for American Water was pointing to an overbought condition with the stock at its current price. Today the stock is at the same price, but the RSI is giving off a neutral indication. And the stock price has been consolidating in the past week heading into earnings which may signal that another run at the all-time high is likely.

A Best-In-Class Utilities Stock

When considering a utilities stock, size (as measured by geographic reach) matters a lot. American Water Works "is the largest and most geographically diverse U.S. publicly traded water and wastewater utility company." The company provides services to 15 million people in 46 states.

Being large has other advantages such as the company's ability to acquire smaller utility companies. This, in turn, increases its own footprint. And growth seems to be on the mind of the company as it recently announced it would be divesting itself of its Homeowner Services Group. The transaction will net American Water $480 million in cash from Apax (the buyer) at closing which is expected to occur before the end of the year. The structure of the deal allows the company to use that cash to fund near-term incremental capital investments.

American Water Works Could be an Infrastructure Play

The "will they or won't they" back-and-forth regarding passage of the Biden administration's infrastructure plan is getting tiring. However, to AWK investors it matters a lot. At one point, up to $48 billion was earmarked for water infrastructure. While the final number may not be that high, American Water is likely to garner a significant percentage of whatever the number will be.

AWK Remains a Solid Retirement Stock

In addition to the recent growth in the AWK stock price, income-minded investors continue to buy the stock for its strong dividend. The company recently announced a dividend to be paid on December 1, 2021 with an ex-dividend date of November 9.

American Water has increased its dividend in each of the last 13 years. It has increased the dividend by 10% over the last eight years. And the payout ratio of just over 61% should give investors plenty of confidence of future growth.