When it comes to commodities, attention typically focuses on gold and oil. But there's only one commodity that humans truly cannot live without - water.
Water covers nearly three-fourths of the Earth's surface, but 97.5% of that is undrinkable seawater, and 70% of what remains is frozen in glaciers.
Climate change, pollution and mismanagement of water resources have already created problems supplying the world's 7 billion people with fresh drinking water. None of those problems are going away, and all are likely to get worse - the earth's population, for example, is expected to reach 9 billion by 2025.
At least 80 countries already are suffering from water shortages, and the United Nations (UN) estimates that 67% of the world population will be "water-stressed" by 2025.
Even parts of the United States have increasingly suffered from droughts and water shortages, particularly in the West and sections of the South, like Texas.
"Water isn't just the oil of the 21st century; water is the raw material for life, for everything," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "I truly believe, as we see this all play out, that water could end up being even pricier than oil - on a per-liter basis."
Just as companies like ExxonMobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) have profited from a high-demand commodity like oil, so too will many of today's water companies profit as fresh water becomes increasingly scarce.
Still, no one is quite sure when water company stocks will start to take off, so the smartest way to play this industry is to look for companies that pay you to wait by offering up a healthy dividend.
Fortunately, since many companies in the water business are utilities, quite a few fit this definition.
Here are seven water company stocks that are in a position to profit from the "blue gold" and that will put cash in your pocket in the meantime:
Water covers nearly three-fourths of the Earth's surface, but 97.5% of that is undrinkable seawater, and 70% of what remains is frozen in glaciers.
Climate change, pollution and mismanagement of water resources have already created problems supplying the world's 7 billion people with fresh drinking water. None of those problems are going away, and all are likely to get worse - the earth's population, for example, is expected to reach 9 billion by 2025.
At least 80 countries already are suffering from water shortages, and the United Nations (UN) estimates that 67% of the world population will be "water-stressed" by 2025.
Even parts of the United States have increasingly suffered from droughts and water shortages, particularly in the West and sections of the South, like Texas.
"Water isn't just the oil of the 21st century; water is the raw material for life, for everything," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "I truly believe, as we see this all play out, that water could end up being even pricier than oil - on a per-liter basis."
Just as companies like ExxonMobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) have profited from a high-demand commodity like oil, so too will many of today's water companies profit as fresh water becomes increasingly scarce.
Still, no one is quite sure when water company stocks will start to take off, so the smartest way to play this industry is to look for companies that pay you to wait by offering up a healthy dividend.
Fortunately, since many companies in the water business are utilities, quite a few fit this definition.
Here are seven water company stocks that are in a position to profit from the "blue gold" and that will put cash in your pocket in the meantime:
- Aqua America Inc. (NYSE: WTR): Aqua America is a holding company for a group of regulated utilities serving 3 million customers in 13 states ranging from Texas to Maine. Its dividend yield is 3% with a payout ratio of 60%. The stock is currently trading at about $21.95, with an average one-year price target of $24.25. Aqua America has already shown potential for growth - its earnings per share (EPS) and dividends have grown at an annual rate of 8% over the past five years.
- California Water Service Group (NYSE: CWT): This water company is a utility that serves California, Washington, New Mexico, and Hawaii. The dividend yield is 3.36% with a payout ratio of 63%. California Water Service has an impressive projected earnings growth of 30.4%. It currently trades around $18.30, with an average one-year price target of $20.60.
- Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE ADR: SBS): This Brazil-based company provides water and sewage services to 23.7 million people in 364 municipalities in the state of Sao Paulo, although that is not its only business. Analysts expect 6% growth for Sabesp over the next five years, although it could easily exceed that. Sabesp's dividend yield is 4.1%, with a low payout ratio of 26%. The stock currently trades around $52.37, with an average one-year price target of $74, a potential 41% gain. And one more tantalizing thing: the P/E is a mere 6.31.
- American Water Works Co. Inc. (NYSE: AWK): American Water Works provides water and wastewater services to 15 million people in 30 U.S. states and parts of Canada - a big swath of territory with lots of growth potential. This water company stock's dividend yield is 3.01% with a payout ratio of 52%. It currently trades at about $30.50, which is just $0.50 short of its 52-week high. The stock has an average one-year price target of $32.63.
- Veolia Environnement (NYSE ADR: VE): Water is just one of four major divisions in this France-based giant, the largest water company in the world based on revenue. Veolia trades at a price to book ratio of 0.73, indicating the value of the company's underlying assets exceeds its market price. It pays a dividend of $1.47, good for a whopping yield of 9.9%, although its payout ratio is a little high at 76%. Veolia trades at about $15.25, with an average one-year price target of $21.45, a potential gain of 40.7%.
- American States Water Co. (NYSE: AWR): This California-based utility provides water, electric, and contracted services in the United States. American States Water's dividend yield is 3.19%, with a payout ratio of 51%. And this water company has been around long enough to have a truly amazing dividends track record: it has paid a dividend every year since 1931, and has increased its payouts every year since 1953. American States Water trades at about $35.25, with an average one-year price target of $39.25.
- SJW Corp. (NYSE: SJW): SJW is a holding company that engages in the production, purchase, storage, purification, distribution, wholesale, and retail sale of water, mostly in the San Jose, CA area. It has a dividend yield of 2.88% and a payout ratio of 52%. Its price-to-earnings growth ratio (PEG) of 1.65 is among the lowest of all the water utilities, indicating it is among the better values at its current price. SJW stock trades at about $24, with an average one-year price target of $28.
News and Related Story Links:
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Money Morning:
Investing in Water: How to Profit From the World's Most Precious Commodity -
Money Morning:
Global Commodity Prices: Soaring Worldwide Population Growth and a Can't-Miss Profit Play -
Money Morning:
Developed and Emerging Nations Forced to Ante Up to Stem a Worldwide Water Shortage -
Motley Fool:
Water Shortages: Here Are the U.S. Companies to Watch -
Investopedia:
Water: The Ultimate Commodity
Are any of these government owned utilities or are they all privately owned? The purpose of the question is to inform readers of any possible long term liabilities, such as exorbitant pensions and other ridiculous benefits that could alter future earnings.
Is there a company that owns the pipelines and storage, acts like a RIET or LMP and pays a nice dividend.
Sometimes water is like mining for gold or oil. Here in Nebraska right now it is one of the biggest debates going with The High Plains Aquifir or Ogallala Aquifir and tarsands crude from Canada. They get a spill in one of the pockets in the aquifir it could run into eight states,possibly. South Dakota,Nebraska,Wyoming,Kansas,New Mexico,Oklahoma,Colorado and Texas. The protestors are arguing that big corporations do not care about that issue. It is corporate greed. There are also arguments from the Deep Sea Horizon problem and not everybody getting their claims settled nor do they want to. I think and have heard by others that water is going to be one of the biggest topics the next fifty years or so. There is another angle that we have looked at with Hyperion trying to get a new green refinery on line in Union County,South Dakota and they wanting 12 million gallons of water per day from the Missouri River. I imagine that is providing they get all their land acqusation,etc. That may not happen. They had mentioned they had other locals they were looking at but no mention where and if someone is looking for a water source,although it may all be fully appropriated for other purposes right now ,they may very well try some big open land in Nebraska right over the Ogallala Aquifir that may not set real well with those trying to protect that antural resource that sustains life and may very well be the bread basket of the nation and the world. So wait and see what happens. They think it is a done deal with the pipeline route but we won't know probably until the end of December if the president signs the routing or not. Meanwhile I do know they will continue to fight that route. Have anice day and I apologize for any typographical errors. Thank you.
I know you seem to request moderation in comments but can one be moderate without lockstepping on an issue or issues that intertwine. About as moderate as one could get would investing in the Ogallala Aquifer be a good natural resource investment to maintain and not pollute with crude oil. As youstated in your article a large percentage of the earths water is already polluted to some degree or non drinkable.
I notice that three of the companies mentioned have significant operations in California. Since California is in severely disastrous fiscal condition, do you think these operators with a major California presence would be affected? After all, utilities need customers to maintain their business model.