Water and waste-water service provider American Water Works Company, Inc. (AWK - Free Report) announced that its board of directors has approved an increase in the quarterly dividend rate by 10.7%. The revised quarterly dividend will be 41.5 cents, payable on Jun 1, 2017, to shareholders of record at the close of business on May 5, 2017.
The annualized dividend rate of the company comes to $1.66 while the current dividend yield is 2.06%, better than the S&P 500 yield of 1.83%. The hike in dividend 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 annually increased its dividend rate every year since its initial public offering (IPO) in 2008.
Water Industry Needs Investment
American Water Works consistently invests in its regulated operations, which ensures a steady earnings stream. For 2017, the company’s capital investment budget is $1.5 billion while it aims to invest $6.7–$7.3 billion from 2017 through 2021, to strengthen its existing water infrastructure. This regular capital investment will help the company to improve earnings by 7–10% per year in the aforesaid period from a 2015 base.
The old water utility infrastructure needs ample investments which are easier for bigger players to make. Consolidation would therefore drive the necessary infrastructure overhauls that have become imperative for the industry at large. A major portion of American Water Works’ investment will be directed in repairing the water main, rehabilitating the water reservoirs and laying down new pipeline in order to serve its customers effectively.
Aqua America Inc. , another water utility, plans to make capital investments of over $450 million in 2017 as part of an ambitious investment target of over $1.2 billion in the 2017–2019 period. Meanwhile, Connecticut Water Service Inc. aims to invest more than $150 million in the 2017–2019 time frame to strengthen its existing infrastructure.
In the last six months, American Water Works’ shares returned 11.6%, outperforming the Zacks categorized Utility-Water Supply industry’s gain of 8.0%.
The utility is well poised to benefit from strategic acquisitions and regulated investments to strengthen existing infrastructure, which, in turn, is expanding customer base and providing a boost to the top line.
American Water Works currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company is a consistent performer and has surpassed Zacks Consensus Estimates in three out of the last four quarters, resulting in an average beat of 3.43%.
A better-ranked stock in the same space is SJW Corporation (SJW - Free Report) , currently having a Zacks Rank #2 (Buy).
SJW Corporation reported positive earnings surprise in three out of the last four quarters, resulting in an average surprise of 36.17%. Its 2017 Zacks Consensus Estimate moved up by 3.9% to $2.15 per share in the last 60 days.
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