3 Top Water Utility Stocks For Growth And Income

Published Fri, 01 Apr 2016 13:00 CET by DividendYields.org

Utility companies are popular among investors, because they consistently deliver dividends. This is due to the government restrictions placed on energy markets that provide utility companies with a monopolistic authority and thereby, with a low elasticity of demand. Moreover, utility companies offer water, power, heat and telecommunications even during uncertain financial times and therefore, their revenue streams are extremely consistent. This allows them to deliver steady dividends to their shareholders.
This article discusses three small caps utilities companies with an average dividend yield close to 3% and an average payout ratio of 62.7%. All three companies are consistently delivering cash dividends, even during a recession, whereas their average beta is 0.38. These low-risk investments with an average debt-to-equity ratio of 0.74 are safe bets for value investors, given that they also have strong fundamentals.

Artesian Resources, Connecticut Water Service and Middlesex Water Company YoY Stock Performance Graph
Artesian Resources (Nasdaq: ARTNA) is a Newark, Delaware-based utility company that provides water, wastewater, and other services through its subsidiaries. Artesian operates in the distribution and sale of water to residential, commercial, industrial, municipal, and utility customers in the states of Delaware, Maryland, and Pennsylvania and it also provides water for public and private fire protection to customers in its service territories. Furthermore, Artesian Resources offers contract water and wastewater management services, as well as design, construction, and engineering services. It is estimated that the company has a network of about 81,400 metered water customers through 1,218 miles of transmission and distribution mains.

Strong FY 2015 Results: Revenues reached $77.0 million, up 6.2% YoY from $72.5 million in 2014. Total operating expenses reached $42.8 million, up 3.4% YoY from $41.4 million in 2014, generating an operating income of $18.0 million, up 12.5% YoY from $16.0 million in 2014. The increase in operating expenses was the result of increased payroll and employee benefits costs, increased purchased power expenses as well as professional and service fees from water rate cases. Net income reached $11.3 million, up 18.9% YoY from $9.5 million in 2014.

Dividend Growth: Artesian Resources declares an annualized dividend of $0.89 per share, yielding 3.26% at a payout ratio of 68%. The company’s dividend growth for the period 2006-2016 is 38.5% or 3.9% annually.

Looking Ahead: The strong performance of Artesian Resources in 2015 was the result of a cost controlling policy as well as of investments made to ensure the delivery of high-quality water to customers. In 2015, the company has invested $21 million in water main improvements and new treatment systems and it is expected to continue upgrading its water and wastewater plants. The average EPS is estimated at $1.41 through 2018, the current EPS is $1.30.

Connecticut Water Service (Nasdaq: CTWS) is a Clinton, Connecticut-headquartered regulated water company that operates through Water Operations, Real Estate Transactions, and Services and Rentals segments. Connecticut Water Service supplies public drinking water, sells or donates real estate holdings and provides contracted services to water and wastewater utilities as well as leasing and rental services of residential and commercial properties to third parties. It is estimated that the company supplies water to about 123,600 customers in Connecticut and Maine.

Full Year 2015 Results: Connecticut Water Service reported revenues $103.1 million, up 1.6% YoY from $101.5 million in 2014. Total operating expenses increased 0.8% YoY to $69.4 million from $68.9 million in 2014 due to increased expenses related to benefits, payroll, and outside resources retained for cyber security, succession planning and overall risk management initiatives. Operating income was down 10% YoY to $26.6 million from $29.6 million in 2014, yet net income recorded an increase of 6.8% YoY to $22.8 million compared to $21.3 million in the same period last year.

Dividend Growth: Connecticut Water Service declares an annualized dividend of $1.07 per share, yielding 2.37% at a payout ratio of 52%. The company’s dividend growth between 2001 and 2016 is 32.3% or 2.2% annually.

Future Outlook: Investment in infrastructure is a growth driver for Connecticut Water Service to ensure water quality and customer health and safety. In 2015, the company invested $47.8 million in its infrastructure including pipes, pumps, storage tanks, cyber security, and water treatment and this is expected to continue in 2016 as well. Estimated average EPS is $2.28 through 2019. Current EPS is $2.04. Average earnings growth is estimated at 5% annually through 2020.

Name Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ m) P/E D/E Beta Payout Ratio
Artesian Resources 27.96 20.70 31.94 35.07% -12.46% 246.58 21.09 0.78 0.50 68%
Connecticut Water Service 45.10 33.15 45.24 36.05% -0.31% 506.12 22.02 0.79 0.20 52%
Middlesex Water Company 30.85 21.24 32.10 45.24% -3.89% 520.00 27.20 0.65 0.44 67%

Middlesex Water Company (Nasdaq: MSEX) is an Iselin, New Jersey-based water company that engages in the owning and operation of regulated water utility and wastewater systems through its subsidiaries. Middlesex operates through the Regulated and Non-Regulated segments, collecting, treating, and distributing water to residential, commercial, industrial, and fire protection customers in New Jersey, Delaware, and Pennsylvania. The company also provides non-regulated contract services for the operation and maintenance of municipal and private water and wastewater systems in the states of New Jersey and Delaware.

Full Year 2015 Results: Middlesex Water Company has completed a successful year of operations. Compared to 2014, the company’s full year 2015 results are as follows:

  • Revenues $126.0 million, up 7.6% YoY from $117.1 million. The increase was mainly attributed to higher weather-driven customer demand in New Jersey, higher demand for water in Delaware and increased revenues from contract operations in New Jersey
  • Total operating expenses $90.2 million, up 9.0% YoY from $82.8 million
  • Operating income up 4.2% YoY to $35.8 million from $34.4 million
  • Net income up 8.6% YoY to $20.0 million from $18.5 million

Dividend Growth: Middlesex Water Company declares an annualized dividend $0.80 per share, yielding 2.48% at a payout of 67%. Dividend growth 2003-2016 is 20.5% or 1.6% annually. The company delivers cash dividends consistently since 1912 and increased its dividend for the 43rd consecutive year in 2015.