#5 - American Water Works Company (NYSE:AWK)
American Water Works Company (NYSE: AWK) - Just like every community needs power, they also need water. American Water Works is one of the largest utilities in this area. They provide drinking water and wastewater services to 1,600 communities in the United States and parts of Canada, making them the largest and most diverse publicly traded water company. And they are looking to make a large investment to upgrade their infrastructure which should make regulators happy and drive their long-term earnings growth. Some analysts are projecting that growth to be around 7%.
Another area that is driving their growth is acquisition. The company only operates in 16 states so there is a large opportunity to expand. These strategic acquisitions are forecast to add as much as two percentage points to the company’s earnings growth.
Add it all together and you have a company that’s projected to have earnings growth of around 10%. Does that make up for a dividend that is currently around 2%? Maybe, then again maybe not. But with its dominant footprint in this highly fragmented category, AWK looks like a solid investment.
About American Water Works
American Water Works Company, Inc, through its subsidiaries, provides water and wastewater services in the United States. It offers water and wastewater services to approximately 1,700 communities in 14 states serving approximately 3.5 million active customers. The company serves residential customers; commercial customers, including food and beverage providers, commercial property developers and proprietors, and energy suppliers; fire service and private fire customers; industrial customers, such as large-scale manufacturers, mining, and production operations; public authorities comprising government buildings and other public sector facilities, such as schools and universities; and other utilities and community water and wastewater systems.
Read More - Current Price
- $129.30
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 2 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $141.33 (9.3% Upside)
There are many reasons for investors not to buy into the narrative that buying utility stocks will harm their portfolio:
To begin with, interest rates are increasing, but the growth is measured and investors’ fears may be overblown. That’s because inflation is showing to be largely toothless which means there’s no imminent pressure for the Federal Reserve to raise rates beyond the measured, telegraphed way in which they have been operating. And historically, if both interest rates and inflation were to increase, regulators will usually allow utility companies to charge higher rates particularly for companies that are in highly populous areas.
Second, utility stocks are coming off a sell-off and are undervalued. Given that U.S. Treasury yields are between 2.5%-3%, utility stocks should be trading at levels above the S&P 500. They are trading at a pretty sharp discount so there's room for utility stocks to grow.
Third, even if the economy were to take a downturn, utility stocks have always been a good defense against bear markets. Having utility stocks in your portfolio will provide an opportunity for growth in any economy.
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