Dividend Kings In Focus: American States Water

Up to date on July seventh, 2025 by Felix Martinez

American States Water (AWR) has a powerful monitor report of paying dividends to shareholders.

AWR is a part of the Dividend Kings, a bunch of shares which have raised their payouts for at the very least 50 consecutive years. You possibly can see all 55 Dividend Kings right here.

And, you possibly can obtain the total listing of Dividend Kings, plus vital monetary metrics akin to dividend yields and price-to-earnings ratios, by clicking on the hyperlink under:

Dividend Kings are the “better of one of the best” relating to rewarding shareholders with money, and this text will talk about AWR’s dividend, in addition to its valuation and outlook.

AWR has raised its dividend for 70 consecutive years, incomes it the longest dividend development streak within the inventory market. No different firm contains a longer dividend development streak than AWR. For context, the second-longest dividend development streak belongs to Dover Company, which has maintained 69 consecutive years of annual dividend will increase.

This text will talk about the the reason why American States Water has maintained such a protracted historical past of regular dividend will increase.

Enterprise Overview

AWR is primarily a regulated water utility enterprise that serves ~263,000 prospects in California. It additionally operates a regulated electrical utility enterprise in California and a non-regulated enterprise, offering companies for water distribution and wastewater assortment on 11 army bases within the U.S.

Associated: The 7 Greatest Water Shares To Purchase Now

The regulated water utility enterprise is by far crucial division, accounting for ~70% of the corporate’s whole revenues.

Supply: Investor Presentation

Whereas the regulated water enterprise generates most of AWR’s revenues, the non-regulated enterprise, which offers companies to water and wastewater programs on army bases, can also be important. AWR has signed 50-year contracts with the army bases, thus securing a dependable and recurring stream of revenues.

Utility shares are slow-growth corporations. They spend huge quantities on increasing and sustaining their infrastructure, accumulating excessive debt hundreds.

In consequence, they depend on regulatory authorities to approve price hikes yearly. These price hikes purpose to assist utilities service their debt, however they often lead to modest income and earnings development.

Authorities have incentives to supply engaging price hikes to utilities, encouraging them to proceed investing closely in infrastructure. Then again, authorities attempt to maintain customers happy, so that they often provide restricted price hikes.

AWR is a brilliant exception to the rule of sluggish development within the utility sector. Up to now decade, the corporate has grown its earnings per share at a mean annual price of 6.7% over the previous 15 years.

AWR achieved a superior development tempo primarily because of the fabric price hikes it has obtained from regulatory authorities and its development in its non-regulated enterprise. General, it has a much less “boring” enterprise mannequin than a typical utility firm.

Progress Prospects

As talked about, utilities are typically slow-growth shares as a result of lackluster price hikes they obtain from regulatory authorities in change for his or her hefty capital bills. AWR is superior to most utilities on this facet, because it has loved an distinctive 10.3% common annual price hike in its regulated water enterprise lately.

Supply: Investor Presentation

This has enabled the corporate to develop its earnings per share at a 7.8% common annual price over the past decade, one of many highest development charges within the utility sector.

Furthermore, because of its optimistic efficiency, resilience to macroeconomic headwinds, and brilliant outlook, AWR raised its dividend by 8.3% this 12 months. That is above the standard dividend development price of utility shares.

AWR has now grown its dividend for 70 consecutive years. The corporate’s 10-year dividend per share CAGR stands at a robust 8.0%.

Additionally it is outstanding that administration has set a objective of elevating the dividend by greater than 7% per 12 months on common over the long run.

Supply: Investor Presentation

Such a excessive dividend development price is uncommon within the slow-growth utility sector, making the inventory’s 2.4% dividend yield considerably extra engaging.

Furthermore, AWR has a markedly sturdy stability sheet and an A+ credit standing, one of many highest within the utility business.

Due to its wholesome payout ratio of ~59%, sturdy stability sheet, and sustained development, AWR has an excellent likelihood of delivering its formidable objective of greater than 7% annual dividend development to its shareholders.

Going ahead, AWR is prone to proceed rising at a significant tempo because of price hikes in its water utility enterprise. Moreover, because of the extremely fragmented nature of the water utility enterprise, AWR may also develop by buying smaller corporations.

Aggressive Benefits & Recession Efficiency

Utilities make investments extreme quantities in sustaining and increasing their networks. These investments lead to excessive debt, however in addition they kind impenetrable obstacles to entry for potential opponents.

It’s basically unimaginable for brand new opponents to enter the utility markets during which AWR operates.

Even in its non-regulated enterprise, AWR enjoys weak competitors because of the 50-year length of its contracts.

As well as, whereas most corporations undergo throughout recessions, utilities are among the many most resilient corporations throughout such durations, as financial downturns don’t have an effect on water and electrical energy consumption.

The resilience of AWR was notably evident through the Nice Recession. Its earnings-per-share through the Nice Recession are as follows:

• 2007 earnings-per-share of $1.56
• 2008 earnings-per-share of $1.49 (4% lower)
• 2009 earnings-per-share of $1.61 (8% enhance)
• 2010 earnings-per-share of $1.66 (3% enhance)

Due to this fact, AWR remained resilient through the Nice Recession, managing to develop its earnings per share by 6% between 2007 and 2010.

AWR’s resilience was additionally evident in 2020, as the corporate nonetheless managed to develop earnings per share regardless of the deep financial downturn brought on by the coronavirus pandemic.

AWR is likely one of the most resilient corporations throughout recessions and bear markets. This resilience is essential, because it helps the inventory’s long-term returns and makes it simpler for shareholders to carry onto the inventory throughout broad market sell-offs.

Valuation & Anticipated Returns

We count on AWR to generate earnings per share of $3.29 this 12 months. In consequence, the inventory is presently buying and selling at a price-to-earnings ratio of 23.2. We contemplate 20.0 to be a good earnings a number of for this inventory.

The comparatively excessive price-to-earnings ratio, which has been sustained through the years, may be attributed, at the very least partially, to the depressed rates of interest of the previous decade.

When rates of interest are low, income-oriented traders face a problem in figuring out engaging yields out there. Thus, they view the dividend yields of utilities as extra engaging. In consequence, utility inventory costs profit from suppressed rates of interest.

Surprisingly, even with rates of interest now on the rise, AWR has retained a steep valuation premium. We imagine this is because of traders flocking to the corporate’s recession-proof money flows, predictable development avenues, and wonderful monitor report of making shareholder worth, which the corporate has constantly demonstrated even through the harshest market environments.

Nonetheless, no one can assure it will stay the case indefinitely. The inventory may simply be priced decrease if traders come to understand that it trades at an extreme valuation a number of. Due to this fact, we see the potential for the P/E a number of to contract shifting ahead.

If AWR reaches our assumed truthful price-to-earnings ratio of 20.0 over the subsequent 5 years, its earnings a number of will contract, leading to a 3.5% discount in its annual returns.

Furthermore, AWR is presently providing a dividend yield of two.4%. We additionally count on the corporate to develop its earnings per share at a 5.3% common annual price over the subsequent 5 years.

Placing all of it collectively, AWR is prone to obtain annual returns of 4.2% by means of 2030.

Ultimate Ideas

AWR is rather more fascinating than the typical utility inventory, because it has some distinctive traits.

During the last decade, it has grown its earnings per share at a excessive single-digit annual price. That is significantly better than the low development charges of most utilities.

Moreover, AWR’s enterprise features a non-regulated section that gives recurring income for 50 years and affords important development potential.

Nonetheless, as a result of market’s excessive software of all AWR’s virtues, shares may very well be overvalued at their present ranges. With a reasonable five-year anticipated whole return potential, AWR inventory receives a “maintain” ranking.

Further Studying

The next databases of shares include shares with very lengthy dividend or company histories, ripe for choice for dividend development traders.