Back to top

Growth & Income

Todd Bunton

California Water Service Group

CWT

 ZacksTrade Now

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

It might not be the most interesting stock out there, but California Water Service Group (CWT - Snapshot Report) offers investors stability during a time of market chaos.

The company has paid a remarkable 266 consecutive quarterly dividends and its stock currently yields 3.4% - about 120 basis point above the 10-year Treasury note.

Analysts are projecting solid earnings growth over the next two years too. With shares trading at a discount to the industry average, CWT offers great total return potential.

More than Just the Golden State

California Water Service Group is the nation's third largest investor-owned water utility. The company has five subsidiaries that provide water service to more than 2 million people in 100 California, Washington, New Mexico, and Hawaii communities.

The company was founded in 1926 and is headquartered in San Jose, California. It has a market cap of $766 million.

Second Quarter Results

California Water Service Group reported solid second quarter results on August 3. Earnings per share came in at 29 cents, beating the Zacks Consensus Estimate of 25 cents. It was a 16% increase over the same quarter in 2010.

Revenue rose 11% year-over-year to $131.4 million, well ahead of the Zacks Consensus Estimate of $127.0 million. The increase is mainly attributable to a rate hike at the beginning of 2011, which was partially offset by lower water usage.

Operating income was up 20% as the company was able to leverage its fixed costs.

Outlook

Being located in relatively fast-growing areas of the U.S. should provide California Water with solid organic customer growth over time. Analysts are projecting strong EPS growth rates for CWT over the next two years.

The 2011 Zacks Consensus Estimate is $1.06, representing 17% growth over 2010 EPS. The 2012 consensus estimate is 7% higher at $1.13.

It is a Zacks #2 Rank (Buy).

Even if the U.S. is headed towards another recession, the risk of these earnings estimates dropping significantly is relatively low.

Dividend

In addition to solid earnings growth, the company offers a dividend that yields a stellar 3.4% - about 120 basis points above a 10-year Treasury note (with a credit rating of A+ from Standard & Poor's).

This is a dividend check you can count on too, as the company has made 266 consecutive quarterly dividend payments.

California Water has slowly but steadily raised its dividend over the last decade at a compound annual growth rate of 1.1%:

CWT: California Water Service Group

Valuation

The valuation picture looks reasonable for CWT. Shares trade at 17.3x 2011 earnings, a discount to the industry average of 19.3x. Its price to book ratio of 1.8 is essentially in-line with the group.

The Bottom Line

California Water offers investors stability amid the market mania. With 266 consecutive dividend payments, its 3.4% yield looks pretty attractive right now compared to Treasuries. With solid earnings growth ahead and reasonable valuation, CWT offers strong total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GROUP DXYN 15.84 +7.90%
BOFL HOLDING BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%