Dividend Kings In Focus: California Water Service

Up to date on July tenth, 2025 by Felix Martinez

California Water Service (CWT) has a powerful observe report of accelerating dividends to shareholders. CWT is a part of the Dividend Kings, a gaggle of shares which have raised their payouts for not less than 50 consecutive years.

You possibly can see all 55 Dividend Kings right here.

You can even obtain an Excel spreadsheet with the total listing of Dividend Kings (plus vital metrics resembling price-to-earnings ratios and dividend yields) by clicking on the hyperlink under:

Dividend Kings In Focus: California Water Service

Impressively, CWT has paid 320+ consecutive quarterly dividends.

The Dividend Kings are the “better of one of the best” in relation to rewarding shareholders with money. This text will focus on California Water Service’s dividend, valuation, and outlook.

Enterprise Overview

California Water Service is a water inventory and the third-largest publicly owned water utility in the USA.

It was based in 1926 and has six subsidiaries that present water to roughly 2 million individuals in 100 communities, primarily in California but additionally in Washington, New Mexico, and Hawaii.

Just like the overwhelming majority of utility corporations, California Water Service is a slow-growth firm. Utilities spend extreme quantities on increasing and sustaining their infrastructure, accumulating excessive debt masses.

Because of this, utilities depend on regulatory authorities to approve annual fee hikes. These fee hikes purpose to assist utilities service their debt, however they normally end in modest income and earnings progress. Regulatory authorities have an incentive to supply engaging fee hikes to utilities, encouraging them to spend money on infrastructure.

Alternatively, authorities provide restricted fee hikes to maintain clients glad. The dependable fee hikes that utilities take pleasure in end in a resilient enterprise mannequin characterised by pretty predictable money flows and earnings progress.

That is clearly mirrored in California Water Service’s distinctive report of dividend progress. The corporate has raised its dividend for 58 consecutive years and initiatives a payout ratio of 51% for 2025.

Supply: Investor Presentation

California Water Service Group reported Q1 2025 working income of $204.0 million, down $66.7 million from $270.7 million in Q1 2024, because of the non-recurrence of $90.3 million in 2023 interim fee aid from the delayed 2021 California GRC. Nonetheless, in comparison with Q1 2024 non-GAAP income of $180.5 million, income elevated by $23.5 million, pushed by buyer fee adjustments and better utilization. Web earnings fell to $13.3 million, or $0.22 per diluted share, from $69.9 million, or $1.21 per share, in Q1 2024, however rose by $9.2 million and $0.15 per share in comparison with Q1 2024 non-GAAP figures. The corporate reaffirmed its dedication to the 2024 California GRC, proposing $1.6 billion in infrastructure investments for 2025–2027, together with income will increase of 17.1% in 2026, 7.7% in 2027, and eight.1% in 2028.

Working bills decreased by $11.3 million to $181.6 million, with water manufacturing prices down $1.2 million to $63.0 million and Incremental Value Balancing Account bills decreased by $9.3 million, although offset by $8.1 million from larger utilization and wholesale water charges. Depreciation and amortization rose by $3.1 million to $36.0 million as a consequence of new utility plant belongings, whereas earnings tax bills dropped by $14.5 million to $1.0 million as a consequence of decrease pre-tax earnings. The corporate maintained sturdy liquidity with $90.1 million in money and money equivalents ($45.7 million of which was restricted) and $315 million in out there short-term borrowing capability as of March 31, 2025.

The Group invested $110.1 million in capital initiatives in Q1 2025, barely above the prior 12 months’s stage, and declared its 321st consecutive quarterly dividend of $0.30 per share, yielding an annual dividend of $1.24, together with a particular dividend of $0.04. The 2024 California GRC is progressing on schedule, with settlement discussions ongoing and evidentiary hearings set for Could 2025. Moreover, the Hawaii Ka’anapali GRC settlement, accredited on April 7, 2025, will enhance income by $1.1 million, efficient Could 2025. These efforts, alongside accredited fee will increase and infrastructure initiatives just like the Palos Verdes Pipeline, underscore the corporate’s deal with reliability and shareholder worth.

We count on the corporate to develop its earnings per share by 5% over the subsequent 5 years and to realize $2.35 per share in earnings in 2025.

Development Prospects

As talked about above, utilities depend on modest fee hikes from regulatory authorities 12 months after 12 months, and thus, they’re primarily characterised as slow-growth shares. California Water Service is not any exception, having grown its earnings per share at a 6.9% common annual fee during the last decade.

We count on the corporate to develop its earnings per share by a median of 5% per 12 months over the subsequent 5 years. Continued fee hikes will probably be one main driver of earnings progress.

Earnings progress must be achievable in the long term, because of the speed hikes repeatedly accredited by related authorities and regulators.

Regulators should constantly encourage the corporate to maintain investing in increasing and sustaining its community.

Clients are depending on excessive–high quality infrastructure that may stay dependable sooner or later, which is why future fee will increase are nearly a given.

One other progress catalyst for California Water Service is acquisitions. Corporations in lots of industries, together with utilities, generate inorganic progress by merely buying new clients.

Supply: Investor Presentation

Total, we count on California Water Service to develop its earnings per share at a median annual fee of 5% over the subsequent 5 years, which is roughly consistent with its historic long-term progress fee.

Aggressive Benefits & Recession Efficiency

Utilities make investments huge quantities in sustaining and increasing their networks. These investments end in excessive debt, however in addition they kind extraordinarily excessive boundaries to entry for potential opponents.

New opponents can not enter the markets during which California Water Service operates. Total, utilities have the widest enterprise moat traders can hope for.

As well as, whereas the overwhelming majority of corporations endure throughout recessions, water utilities are among the many most resilient corporations throughout such durations, as financial downturns don’t have an effect on the quantity of water clients devour.

The resilience of California Water Service was evident within the Nice Recession. Its earnings-per-share in the course of the Nice Recession are under:

2007 earnings-per-share of $0.75
2008 earnings-per-share of $0.95 (27% enhance)
2009 earnings-per-share of $0.97 (2% enhance)
2010 earnings-per-share of $0.90 (7% lower)

Subsequently, not solely did California Water Service not incur a lower in its earnings in the course of the Nice Recession, but it surely grew its earnings per share by 20% all through the 3-year interval of 2007-2010. That efficiency was in sharp distinction to the efficiency of the overwhelming majority of corporations, which noticed their earnings collapse in the course of the Nice Recession.

California Water Service’s distinctive resilience was additionally evident within the 2020 financial downturn brought on by the coronavirus pandemic. Whereas most corporations incurred a cloth lower in earnings throughout this era, California Water Service grew its earnings per share by a staggering 50% in 2020.

California Water Service is among the most resilient corporations throughout recessions and bear markets.

Valuation & Anticipated Returns

California Water Service is predicted to generate earnings per share of $2.35 this 12 months. Because of this, the inventory is at present buying and selling at a price-to-earnings ratio of 19.8. It is a honest valuation a number of for a utility inventory, which is often characterised by sluggish progress. We think about 20.0 to be a good earnings a number of for this inventory.

If California Water Service reverts to our assumed honest price-to-earnings ratio of 20.0 over the subsequent 5 years, it is going to incur a 1.0% annualized tailwind in its returns. This might assist with the constructive returns of earnings-per-share progress and dividends.

The inventory gives a dividend yield of two.6%, about double that of the S&P 500.

By way of the mixture of anticipated earnings-per-share progress, valuation adjustments, and dividends, we consider California Water Service is more likely to provide a median annual whole return of 8.6% over the subsequent 5 years.

Remaining Ideas

California Water Service has constantly demonstrated distinctive dividend progress, because of its dependable earnings progress, which is supported by fee hikes accredited by regulatory authorities.

As well as, because of its wholesome payout ratio and stable enterprise mannequin, the corporate ought to simply proceed elevating its dividend at a mid-single-digit fee for a few years to come back.

Whereas California Water Service is a “boring” inventory, it’s exceptionally resilient throughout recessions. When most corporations see their earnings collapse, California Water Service offers a haven to traders.

Because of this, we at present fee this utility as a maintain because of the low anticipated whole return over the subsequent 5 years.