California Water: Refreshing
If only there were more water stocks. The few publicly traded water companies are pumping marvelous total returns: 25% a year over the past ten years at industry giant Aqua America (symbol WTR) and close to that at others, such as California Water Services (CWT), American States Water (AWR) and SJW Corp. (SJW). Water stocks are also remarkably consistent, with double-digit annualized total returns common across one, three, five and ten years.
One of the best performers so far in 2006 is California Water, which is headquartered in San Jose and also has operations in Hawaii, New Mexico and Washington. At $42, it's up 9% from $38 at the start of 2006. Cal Water just announced a strong finish to 2005, with fourth-quarter earnings of 32 cents a share, up from 20 cents a year earlier. Cal Water's full-year 2005 profits were basically flat because of the rainy weather early in 2005 that restrained water consumption. But business is improving again. There's also a $1.15-a-share dividend that works out to a yield of 2.7%. California Water has now raised dividends for 39 straight years.
Assuming normal weather conditions in 2006, analysts James Lykins of Hilliard Lyons and David Schanzer of Janney Montgomery Scott are calling for Cal Water's earnings to jump this year, from $1.48 a share for 2005 to $1.75 and $1.86, respectively. Both reviewed the recent quarter and have a buy rating on the shares. Since water companies are generally trading at 25 to 30 times earnings, the shares would then appear to be headed for around $50.
Water companies' returns are regulated, so the companies are classified as public utilities. But, for investors, they're more like dividend-paying growth stocks -- and not just because of their past performance. Water usage expands with population and housing growth, and water companies are also able to grow by making acquisitions. California Water started expanding to other states in 1999 when it bought into Washington and says it is always scouting around for more opportunities.
--Jeffrey R. Kosnett