AWK is a steadily growing cash-cow via regular utility rate increases, new contracts, and annual targeted acquisitions. AWK is also steady dividend payer; today yielding 2% — each year AWK raises the dividends per share, meaning greater compound returns in the future and a solid way to build long-term wealth. In-fact AWK has raised its dividend by ~9% each year for the past 14 years. AWK plans to keep raising the dividend by 7%-10% per year for the next five years.
American Water Works Company, Inc. Water Infrastructure Stock Appears a Solid Long-term Wealth Builder
SHARE DATA, MARKETCAP, CORPORATE INFO:
American Water Works Company, Inc. — the largest publicly traded water utility in the U.S.
NYSE stock symbol: AWK
Share Price: ~$127.72 on NYSE
Market Cap: ~$23.21B USD
Cash: $71M, Total debt; $11.7B, P/E ratio (TTM): 17.86, Dividend Yield: 2%
Shares Outstanding: ~ 181.79 Million
Key statistics: https://finance.yahoo.com/quote/AWK/key-statistics?p=AWK
Company website: https://www.amwater.com
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American Water Works Company, Inc. is a New Jersey based company providing water and wastewater services to 14 million people in 24 states.
Figure 1. (above) Places American Water Works is active. Image source: Company Presentation. Besides civilian residential projects (shown in blue) the company also serves military installations across the country (shown in green) — military contracts is they run for 50 years (e.g. the company’s new contract with the Navy is for $341 million over 50 years – providing a steady stream of revenue and profit). AWK is looking to add new military contracts, actively negotiating on one is in Maryland and one in Florida.
Water is a basic necessity of life, it’s scarce, and a consistent growth market; according to the U.S. Geological Survey, only 2.5% of all available water on the planet is fresh, and of that fresh water just 1% is good enough to drink. The Organisation for Economic Cooperation and Development (OECD) says that by 2030 only 60% of the world’s population to meet its water needs and forecasts the planet using 55% more water in 2050 than in 2020 — OECD sees global water infrastructure needing ~$6.7 trillion in investment by 2030. Fortune Business Insights predicts the water and wastewater treatment market to grow from $302B in 2022 to $489B by 2029, ~7% compound annual growth.
Between 2022 and 2031, AWK expects to invest up to $32B in its assets, including ~$22B on infrastructure renewal, $3.5B in asset resiliency, ~$2B for water quality, and the rest on new technology, innovation, & operations.
AWK is a Steadily Growing Cash Cow: Currently AWK brings in just under $4B in revenue through a mix of selling water and wastewater services. Water is a regulated utility so AWK has agreements setting rates with each city it serves. This limits growth but guarantees revenue and periodically AWK offers proposals to increase rates – the proposals often offer AWK being responsible for spending money to facilitate upgrades for the area (e.g. replacing pipes and improving water treatment) – the end result, if all goes to plan, is steady growth in revenue and profit. AWK also grows through acquisition; each year aiming to acquire between 55,000 – 85,000 new connections via expanding in nearby areas it already serves. This 2022 AWK plans to spend $300-$400 million gaining new customers. AWK is also steady dividend payer; today yielding 2% — each year AWK raises the dividends per share, meaning greater compound returns in the future and a solid way to build long-term wealth. In-fact AWK has raised its dividend by ~9% each year for the past 14 years. AWK plans to keep raising the dividend by 7%-10% per year for the next five years.
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Note on timing a purchase: Currently we are in a general bear market for stocks, this makes stock picking timing difficult. Consider buying warrants instead of the stock if you want to limit risk. Don’t get mad if the stock goes down, be happy as you can get more stock at a cheaper price… so do not necessarily buy all in one tranche — the point here is, this appears a good company to scale into over the long run.
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