Investing in Water
The Great Lakes contain 21% of the world’s surface fresh water and 54% of the world’s liquid fresh water by volume.
As I live next to Lake Michigan, part of this largest group of freshwater lakes in the world, I tend to forget that water is a commodity that much of the United States and the world is experiencing shortages in.
As the world’s population continues to grow, the need for drinking water as well as for irrigation to feed the growing population ever increases. The greatest need for fresh water is likely not going to be adjacent to the Great Lakes, but rather in other parts of the world where ocean salt water may be in abundance but where fresh water is difficult to come by.
Some people are even considering that water is “the oil of the 21st century.” CITE Investments also has a post from 2009 that is a good read called “Why Invest in Water?”
In order to participate in this growth market, I envision a few avenues:
1) water utilities
2) desalination & water treatment facilities
3) waste recycling
4) smart, centralized water grids
Rather than go into much detail about these companies, which isn’t my speciality, I’ve instead grouped them below and will simply list a few companies and then reference a few important things about their dividend, if they pay one. (Source for the data is Schwab.)
1) Water Utilities
| Company Name | Symbol | Dividend Yield | Payout Ratio | 5-Year Dividend Growth | 10-Year Dividend Growth |
|---|---|---|---|---|---|
| American States Water Company | AWR | 2.63% | 53.3% | 8.7% | 5.6% |
| American Water Works Company Inc | AWK | 2.45% | 65.8% | 22.9% | — |
| Aqua America Inc. | WTR | 2.66% | 51.8% | 7.4% | 7.9% |
| Artesian Resources | ARTNA | 4.04% | 81.2% | 3.0% | 4.5% |
| California Water Services Group | CWT | 2.68% | 66.3% | 1.8% | 1.3% |
| Connecticut Water Services | CTWS | 3.09% | 50.1% | 2.2% | 1.7% |
| Middlesex Water Co. | MSEX | 3.69% | 72.5% | 1.4% | 1.5% |
| SJW Corp | SJW | 2.68% | 69.9% | 2.1% | 3.9% |
| York Water | YORW | 2.82% | 84.8% | 2.5% | 4.2% |
*AWK cut annual dividend from $1.21 in 2012 to $0.84 in 2013.
*MSEX cut annual dividend from $0.68 in 2006 to $0.52 in 2007.
My favorite of the water utility stocks listed above is Aqua America. They’ve paid consistently and raised dividends by well above the level of inflation. While they don’t have the highest starting yield, they pay out under 52% so have plenty of room if they need it.
2) Water Treatment & Desalination Technology
| Company Name | Symbol | Dividend Yield | Payout Ratio | 5-Year Dividend Growth | 10-Year Dividend Growth |
|---|---|---|---|---|---|
| Air Products and Chemicals Inc. | APD | 2.32% | 60.7% | 9.7% | 11.9% |
| Ecolab Inc. | ECL | 0.95% | 27.7% | 11.7% | 12.0% |
| General Electric | GE | 3.37% | 55.6% | -9.3% | -0.1% |
| Xylem | XYL | 1.36% | 32.6% | — | — |
LG NanoH20 Inc. – recently acquired by LG Chem Ltd. Trades on the South Korean stock market.
*XYL just started paying a dividend in 2011, at which point it increased it 300% in 2012 and then a 15% increase in 2013.
*GE cut its dividend in 2009 and 2010 but has since raised it from $0.46 in 2010 to $0.88 in 2014. Also, with GE and APD, you are unable to invest specifically in their water division group, rather you have to invest in the entire diversified company.
This is one of the most excited parts of investing in water for me…I love new technology and its applications. These, other than GE and APD, can mostly be considered growth companies that pay only small dividends.
3) Waste Recycling
New Sky Energy – privately held, but a company to watch.
4) Smart, centralized water grids
A number of companies, all private, are listed at the Artemis Project’s website below.
One way to invest similar companies/ industries is to invest in 3M’s Water Infrastructure division. Another fascinating approach that 3M takes is through its New Ventures program, which “identifies and invests in the most promising new-to-3M technologies, services and business models with long term strategic relevance to 3M.”
For more information regarding water the technology, I’d recommend visiting The Artemis Project – A pioneer’s view of the frontier.
Scott,
I was reading one of AWR’s annual reports not long ago that cited water as more valuable than gold. After all, gold doesn’t sustain life.
I’d like to own a water utility at some point, but I’ll have to be happy with my investments in APD and GE right now.
Great article!
Best regards.
Dividend Mantra recently posted…Income/Expenses For August 2014
Thanks, Jason. I’ve grown up near water all my life and forget how valuable a resource it is! APD and GE are so diversified…I’m sure they both will be striving to take advantage of all the water desalination and treatment technology they can. I’m invested in GE but have yet to invest in APD.
Man, there are so many great companies out there that I have yet to invest in. Just need to get some more money in order to do so!
Here are some more stocks to consider from a post I did a while back titled, “Dividend Stocks To Quench Your Thirst”
http://divhut.com/2014/06/dividend-stocks-quench-thirst/ Some overlap but some new companies too. There is no question that water rights will be an issue in the coming decades. Thanks for sharing.
Thanks, DivHut! Hadn’t read your post yet. A bunch more good companies to consider. Thanks for sharing.
You’re completely right; as the population grows, clean, fresh water will only get more valuable. I really hope to own a few of these guys someday. Owned AWK before I became a DGI, and it treated me well. Didn’t know they cute the dividend though; must have happened after I sold.
DividendDeveloper recently posted…Income/Expenses Report – 09/2014
I am glad you see the importance in investing in water. I, too, live in a location where water is a commodity but this isn’t always the case!