Investing in Water Stocks: Five Dividend-Paying Utilities

One of the adages of investing is to look for things that people absolutely must have, and nothing fits that definition more than water.

And with droughts and water shortages becoming increasingly common, investing in water stocks - particularly water utilities that pay dividends - makes more sense than ever.

Almost every part of the world has some sort of issues with their water supply. Some 780 million people don't have access to clean drinking water.

Even the United States has its water woes.

Just look at what's been going on in California in recent years. Last year was the driest year on record, and this year hasn't been any better. Many key reservoirs are falling dangerously below capacity.

And now the U.S. Geological Survey estimates that the chance of a decade-long drought in the Southwest is "at least 80%."

This is nothing short of a crisis, but more than that, it's a crisis that government and business have no choice but to solve.

That makes it a prime investing opportunity.

When it comes to investing in water stocks, dividend-paying utilities are a particularly good option. Such companies not only provide steady income, but also will deliver capital appreciation over time.

Investing in Water Stocks: Try These Five Utilities

We've found five dividend-paying water utility stocks that all offer a yield of at least 2.6%.

• Investing in Water Stocks Pick No. 1: American Water Works Co. Inc.  (NYSE: AWK)
  Dividend yield: 2.6%
  American Water Works is the largest publicly traded water utility in the United States, serving 14 million people in more than 40 states. A growth-by-acquisitions has ensured constant increases in earnings. That's also helped AWK continue to raise its dividend, which it has done for five consecutive years. Since American Water Works is trading near its 52-week high, it's within 4.3% of its $52.62 one-year target. But over time it's a solid, dependable investment - since we first recommended it in Oct. 2011, the stock is up 65%. AWK closed at $50.51 on Friday.

The rest of these water utilities are smaller companies, but the stocks have greater potential upside...

• Investing in Water Stocks Pick No.2: Aqua America Inc. (NYSE: WTR)
  Dividend yield: 2.6%
  Aqua America operates in eight states ranging from Texas to New Jersey and serves 3 million customers. Aqua America, too, is fond of growth by acquisitions and has completed eight in 2014. As a bonus, WTR is getting some benefit from the added demand arising from shale drilling operations in Pennsylvania. The company has raised its dividend six consecutive years. In terms of capital appreciation, Aqua America is expected to gain 11.48% over the next year, assuming a one-year target price of $27.67. WTR closed at $24.84 on Friday.

• Investing in Water Stocks Pick No. 3: Connecticut Water Service Inc. (Nasdaq: CTWS)
  Dividend yield: 3.10%
  Connecticut Water Services is much smaller than either Aqua America or American Water Works, as it has just 121,768 customers in Connecticut and Maine. But the company has been a steady performer, having increased its dividend for 44 years straight. Analysts expect CTWS to rise 11.64% over the next year to reach a one-year target price of $37. The stock closed at $33.30 on Friday.

• Investing in Water Stocks Pick No. 4: Middlesex Water Co. (Nasdaq: MSEX)
  Dividend yield: 3.70%
  Like CWTS, Middlesex is a small water utility that operates in the Northeastern part of the United States, specifically New Jersey, Delaware, and Pennsylvania. And like CWTS, MSEX is a dividend aristocrat, having increased its payout for 41 consecutive years. It also has an impressive record of having paid a dividend for 102 straight years. Since 2011, Middlesex has enjoyed steady growth in both revenue and earnings. MSEX is expected to gain 14% over the next year to reach a target price of $23.50. It closed at $20.59 on Friday.

• Investing in Water Stocks Pick No. 5: Artesian Resources Corp. (Nasdaq: ARTNA)
  Dividend yield: 3.90%
  By market cap, Artesian Resources is by far the smallest on this list at $186.6 million. But it also offers the biggest dividend. As you might expect, ARTNA is a very localized water utility, serving 300,000 customers on the Delmarva peninsula. The stock could get a lift should the Delaware Public Service Commission approve a 12% increase in rates the company requested in April. ARTNA has increased its dividend for five straight years. Artesian is expected to rise 18.35% over the next year to reach a target price of $24.83. ARTNA closed at $20.98 on Friday.

Follow me on Twitter @DavidGZeiler.

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