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Investment & Debt Management Aid American States Water (AWR)

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American States Water Company (AWR - Free Report) has been gaining from an expanding customer base, systematic investments in upgrading infrastructure, regular dividend hikes and a strong credit rating. These are likely to drive the performance over the long run.

The Zacks Consensus Estimate for American States Water’s 2022 earnings per share (EPS) of $2.63 indicates year-over-year growth of 6.5%.AWR’s current dividend yield of 1.7% is better than the Zacks S&P 500 Composite’s yield of 1.48%.

Tailwinds

American States Water has a sturdy utility customer base. Its electricity and water utility customer bases are increasing at a slow but steady pace. In November 2021, a settlement was reached on all issues related to the 2022 annual revenue requirement, leaving only three of the items in the general rate case application filed in 2020 for new water rates for 2022, 2023 and 2024. New rates will help recover the amount invested to upgrade and improve the infrastructure. AWR expects to invest in the range of $140-$160 million in regulated utilities in 2022. These systematic investments are likely to drive the rate base from $752.2 million in 2018 to $1,152.3 million in 2022.

American States Water has ample liquidity to meet near-term obligations. Standard and Poor’s Global Ratings affirmed an A+ credit rating on both American States Water and Golden State Water. Also, AWR’s long-term debt was $412.2 million as of Dec 31, 2021, down from $440.3 million as of Dec 31, 2020. American States Water’s times interest earned ratio improved to 6.5 at the end of the fourth quarter of 2021 from 6.1 at the end of 2020. A ratio greater than one indicates that the utility will be able to meet debt obligations in the near future without any difficulty.

American States Water has been a steady dividend payer since 1931 and has increased the same in each calendar year for the last 67 consecutive years. The consistent performance helps continue with the shareholder-friendly move. AWR expects a CAGR of more than 7% over the long term. The board of directors approved a 9% hike in the first-quarter dividend, bringing the total to 36.5 cents per share from 33.5 cents in 2021.

Headwinds

American States Water’s dependence on a single state for the majority of earnings and the aging water infrastructure in some areas of California are a concern as these will increase maintenance expenses and could adversely impact profitability. Liquidity and operations might be adversely affected by changes in water supply costs along with the risk of groundwater contamination in service territories. Also, the implementation of strict environmental regulations can significantly increase operating costs.

Other Stocks to Consider

Some other stocks from the same industry are Consolidated Water (CWCO - Free Report) , American Water Works (AWK - Free Report) and Essential Utilities (WTRG - Free Report) .

The Zacks Consensus Estimate for 2022 EPS of Consolidated Water, American Water Works and Essential Utilities has moved up 76.5%, 4.7% and 6.6% year over year, respectively.

The long-term earnings growth of Consolidated Water, American Water Works and Essential Utilities is projected at 8%, 8.1% and 6.1%, respectively.

CWCO, AWK and WTRG’s current dividend yield of 3.3%, 1.5% and 2.3%, respectively, is better than the Zacks S&P 500 Composite’s yield of 1.48%.

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