World Water Day's Top Pick: American Water Works (AWK)

Did you know there is even a World Water Day?  You should.  The future of water is dire and most Americans do not know what a challenge it is in many regions of the emerging and even the developed world to get potable water in any quantity at any time without limitation.  Future wars are possibly going to be fought over water rights.  So, what does this mean for your finances today?  If there is one water investment that investors can chase it is American Water Works Company, Inc. (NYSE: AWK).

This is the largest of the public utilities in America and it has only been public (again) since 2008.  If you look just at the charts the initial thought may be that the stock got away from you.  We have been calling for a bright future here on this one since the low-$20’s, but we would still not shy away.  Investors should use any weakness as the opportunity, but the problem to consider is that this stock almost never pulls back by 10% from its new highs.  When it does, it has proven time after time to be a bargain.

American Water Works serves approximately 15 million people with drinking water, wastewater, and other water services in about 30 states and 2 Canadian provinces.  The market value is still not off the charts compared to electric utilities as it is valued at $5.85 billion.

Where it sounds expensive is its 17-times expected earnings multiple.  The reason for this is simple: it is a series of built-in local monopolies around America.  Power companies and telecom companies often have competing interests for their services even at the expense of some of the large operators.  That is just not the case in the world of water.

At $33.35, the 52-week trading range is $25.39 to $34.67 and the Thomson Reuters consensus is now up to $36.07.  Long-term we see this one going to $40.00 and the dividend yield is currently about 2.8% and it is a member of our Model 2012 Dividend Portfolio.  We expect another dividend hike to be announced this summer.

JON C. OGG