Time to Buy Aqua America

Shares of Aqua America Inc. ( WTR - Snapshot Report ) are trading near their 52-week high of $30.33. In fact, the Bryn Mawr, Pennsylvania–based premier water utility has seen its stock price climb some 15% since the beginning of the year.

Despite this price appreciation, we remain optimistic on the firm’s near-term prospects, supported by consistency in its earnings/cash flows, attractive fundamentals and a positive outlook. These factors are reflected in Aqua America’s Zacks Rank #1 (Strong Buy), implying that it is expected to significantly outperform the broader U.S. equity market over the next one to three months.

Why the Bullishness?

Positioned in a niche industry with high barriers to entry, Aqua America enjoys near-monopoly status in its area of operation. On top of this, the utility’s best-in-class cost control and limited credit market exposure presents a unique opportunity to own a safe stock.

Aqua America pays an annual dividend of 70 cents per share, yielding a solid 2.3%. The utility hiked its dividend payout by 6.1% in Aug 2012, marking the 22nd dividend increase in as many years. Aqua America has a long and consistent dividend paying record, going back more than 65 years. Moreover, Aqua America’s current dividend caps the payout ratio around 55%, reasonable and in line with peers. This indicates enough headroom for future dividend increases given the utility’s strong management and solid financial position.

Further, we believe that Aqua America’s April 2012 start-up of its Marcellus shale pipeline joint venture with PVR Partners L.P. ( PVR - Analyst Report ) has been a key catalyst in diversifying its portfolio outside of the core business of regulated water services. The venture aims to supply fresh water to energy companies’ drill sites in the region.

Overall, opportunities for drinking water suppliers like Aqua America are set to improve, as it captures the economic benefit of dealing with a natural resource with no substitute and future projected demand/supply imbalance.

Other Stocks to Consider

In addition to Aqua America, there are certain other utilities like The Laclede Group Inc. ( LG - Snapshot Report ) and Pike Electric Corp. ( PIKE - Snapshot Report ) that offer great value and are worth buying now. All these firms sport a Zacks Rank #1 (Strong Buy).