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American Water Works Sustains Dividend Trend With 9.6% Hike

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American Water Works Company, Inc. (AWK - Free Report) announced that its board of directors has approved an increase in the quarterly dividend rate by 9.6%. The revised dividend will be 45.5 cents, payable Jun 1, 2018, to shareholders of record at the close of business on May 11.

The annualized dividend rate of the company comes to $1.82 while the current dividend yield is 2.17%, better than the S&P 500 yield of 1.83%. The hike is consistent with the company’s payout target ratio of 50-60% of net income.

Thanks to consistent investments in its regulated operation, American Water Works is able to reliably serve its expanding customer base. Also, the improvement in net income helps the company to carry out shareholder-friendly moves. Including the current hike, the company has increased its dividend rate every year since its initial public offering in 2008.

Can American Water Works Maintain the Dividend Trend?

American Water Works is a regulated utility and invests in regulated operations to expand and upgrade its existing infrastructure. Upgrading aging water, wastewater treatment facilities and water mains helps the company to improve quality and reliability of its water and wastewater services.

For 2018, the company’s capital investment budget is $1.4-$1.5 billion and it aims to invest $8-$8.6 billion from 2018 through 2022 to strengthen its existing water infrastructure. Since, it is a regulated utility, it is applying to the regulatory commission in its service territories to revise water and wastewater rates to recoup investments.

The expected rate revisions are likely to improve its earnings by 7-10% per year in the aforesaid period and allow management to revise dividend rates.

Water Industry Needs Investment

The U.S. water infrastructure is quite old and requires massive investment to upgrade the existing water and wastewater systems. Some of the water mains are nearly a century old and require immediate replacement. Investment of billions of dollars is required for the purpose.  

Water utility Aqua America Inc. after investing $478 million in 2017, aims to make capital investments in excess of $500 million in 2018, which is part of an ambitious investment target of more than $1.4 billion for the 2018-2020 period.

Meanwhile, Connecticut Water Service Inc. aims to invest $66.2 million in 2018, in part to fund improvements to water treatment plants and increased spending related to infrastructure enhancements.

Price Movement

In a month, American Water Work’s shares have returned 4.8%, outperforming the Zacks Utility-Water Supply industry’s  0.9% gain.



The utility is well poised to benefit from strategic acquisitions and regulated investments to strengthen its existing infrastructure, which will expand its customer base and boost top line.

Zacks Rank & A Stock to Consider

American Water Works carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked stock in the same space is Global Water Resources, Inc. (GWRS - Free Report) , having a Zacks Rank #2 (Buy).

Global Water Resources delivered positive earnings surprises in two out of the last four quarters.

Its 2018 Zacks Consensus Estimate moved up 16.7% to 14 cents in the last 60 days.

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