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It might not be the most interesting stock out there, but California Water Service Group (CWT - Free 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.


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.


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


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.

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