First Published on February 8th, 2022 by Bob Ciura for SureDividend
Water is one of the basic necessities of human life. Life as we know it cannot exist without water. For this simple reason, water may be the most valuable commodity on Earth.
It is only natural for investors to consider purchasing water stocks. There are many different companies that can give investors exposure to the water business, such as water utilities. Some other companies are engaged in water purification.
In all, we have compiled a list of over 50 stocks that are in the business of water. The list was derived from five of the top water industry exchange-traded funds:
- Invesco Water Resources ETF (PHO)
- Invesco S&P Global Water ETF (CGW)
- Invesco Global Water ETF (PIO)
- First Trust ISE Water Index Fund (FIW)
- Ecofin Global Water ESG Fund (EBLU)
You can download a spreadsheet with all 56 water stocks (along with metrics that matter like price-to-earnings ratios and dividend yields) by clicking on the link below:
In addition to the Excel spreadsheet above, this article covers our top 7 water stocks today, that we cover in the Sure Analysis Research Database.
This article will discuss the top 7 water stocks according to their expected returns over the next five years, ranked in order of lowest to highest.
In this article
Table of Contents
- Water Stock #7: Consolidated Water Co. (CWCO)
- Water Stock #6: Idex Corporation (IEX)
- Water Stock #5: SABESP (SBS)
- Water Stock #4: Roper Technologies (ROP)
- Water Stock #3: Stantec Inc. (STN)
- Water Stock #2: Mueller Industries (MLI)
- Water Stock #1: Algonquin Power & Utilities (AQN)
Water Stock #7: Consolidated Water Co. (CWCO)
- 5-year expected annual returns: 8.4%
Consolidated Water was founded in 1973 as a private water utility in Grand Cayman. The company uses a desalination process that helps provide water where naturally potable water is scarce or does not exist. Consolidated Water has since grown to a $224.6 million market capitalization. It serves a wide variety of international customers.
Consolidated Water reported third quarter results on 11/14/22. Total revenue increased 53% to $25.1 million. Retail revenue increased 20% to $6.3 million. Bulk revenue increased 26% to $8.7 million. Services revenue increased 172% to $8.7 million.
Net income from continuing operations attributable to company stockholders was $824,000 or $0.05 per share and the company paid a quarterly cash dividend of $0.085 per share ($0.34 on an annualized basis), totaling $1.2 million in dividends in the third quarter of 2022.
As of September 30, 2022, cash and cash equivalents totaled $51.1 million, up $2.0 million from $49.1 million as of June 30, 2022, with working capital at $71.1 million, debt of only $0.2 million, and stockholders’ equity totaling $158.8 million.
Click here to download our most recent Sure Analysis report on CWCO (preview of page 1 of 3 shown below):
Water Stock #6: Idex Corporation (IEX)
- 5-year expected annual returns: 8.4%
The IDEX Corporation (IEX) is a company that sells industrial products worldwide. The business operates through three segments: Fluid & Metering Technology (FMT), Health & Science Technologies (HST), and Fire & Safety/Diversified Products (FDSP).
These segments made up 35.5%, 43.5%, and 21.0% of sales, respectively, for 2022. Inside each of the segments, IDEX owns a series of businesses in niche markets that own highly engineered and proprietary assets.
Source: Investor Presentation
These businesses are generally in fragmented niches in growing markets, and most of their businesses are first or second in their niche markets. This gives the business the advantage of being able to drive high returns on operating capital because each of its individual businesses has a moat. IDEX Corporation was incorporated in 1987 and has 8,500 employees.
On January 31st, 2023, IDEX reported Q4 2022 results for the period ending December 31st, 2022. The company earned $2.01 in adjusted earnings-per-share in the quarter increasing 29.7% from the year-ago quarter’s $1.55. For the quarter, IDEX’s net sales were $810.7 million, reflecting year-over-year growth of 13.4%. Organic sales in the quarter increased 12% year-over-year, higher than 9% growth expected by IEX. Full year 2022 net income increased $137.5 million to $586.9 million, which resulted in adjusted earnings per share of $8.12.
IDEX expects adjusted earnings per share of $1.98 to $2.03 for Q1 2023 and a growth of 3-5% in organic sales compared to the same period in the previous year.
Click here to download our most recent Sure Analysis report on IDEX (preview of page 1 of 3 shown below):
Water Stock #5: SABESP (SBS)
- 5-year expected annual returns: 8.5%
SABESP is one of the world’s largest water supply, sewage collecting, and treating companies, serving 28.4 million people. The company operates in a natural monopoly, serving the City of Sao Paulo and 375 out of the 645 municipalities in the state, covering around 70% of its urban population. It has a total water treatment capacity of 81.7 (m³/s) and generates around $3.4 billion in annual revenues.
The Government of Sao Paulo is required by law to have voting control at all times and hence owns 50.3% of SABESP’s share capital. SABESP is based in Sao Paulo, Brazil, and reports its financials in Brazilian Real. All figures in this report have been converted to U.S. dollars.
On November 15th, 2022, SABESP reported its Q3 results for the period ending September 30th, 2022. Revenues came in at $1.11 billion, 16.2% higher year-over-year in constant currency. The increase was driven by: (i) tariff adjustments of 12.8% since May 2022; (ii) a 1.6% increase in billed volume; and (iii) a higher average tariff due to the increase in the billed volume in the non-residential categories.
Earnings per share (ADR) came in at $0.29, a significant increase from last year’s $0.13. While profits were boosted by higher margins amid higher revenues, this result includes a $65.2 million gain in exchange variations on borrowings and financing, which boosted the bottom line.
Click here to download our most recent Sure Analysis report on SABESP (preview of page 1 of 3 shown below):
Water Stock #4: Roper Technologies (ROP)
- 5-year expected annual returns: 8.9%
Roper Technologies is a specialized industrial company that manufactures products such as medical and scientific imaging equipment, pumps, and material analysis equipment. Roper Technologies also develops software solutions for the healthcare, transportation, food, energy, and water industries. The company was founded in 1981, generates around $5.4 billion in annual revenues, and is based in Sarasota, Florida.
On November 10th, 2022, Roper raised its dividend for the 30th consecutive year by 10.1% to a quarterly rate of $0.6825.
On January 27th, 2023, Roper reported its Q4-2022 and full-year results for the period ending December 31st, 2022.
Source: Investor Presentation
On a continuing operations basis, quarterly revenues and adjusted EPS were $1.26 billion and $3.92, indicating a year-over-year increase of 14% and 17%, respectively. The company’s momentum during the quarter remained strong, with organic growth coming in at 7%. Organic growth was once again driven by broad-based strength across its portfolio of niche-leading businesses.
Adjusted EPS of $14.28 for the year actually grew 15% compared to last year taking into account recent divestitures. The minor margin in our tables between the two years reflects discontinued operations. Backed by Roper’s growth momentum, balance sheet strength, and a large pipeline of high-quality acquisition opportunities, management believes Roper is well positioned for continued double-digit cash flow growth.
Roper initiated its adjusted EPS guidance for the FY2023, expecting it to land between $15.90 and $16.20. We have utilized the midpoint of this range in our estimates, which implies a year-over-year growth of 12.4%.
Click here to download our most recent Sure Analysis report on Roper (preview of page 1 of 3 shown below):
Water Stock #3: Stantec Inc. (STN)
- 5-year expected annual returns: 9.4%
Stantec Inc. provides professional consulting services in the field of infrastructure and facilities internationally. This includes services in engineering, architecture, interior design, environmental sciences, project management, and project economics.
The company also undertakes water provision, transportation, and public works such as transportation planning and traffic engineering.
Source: Investor Presentation
Finally, it serves the urban regeneration, infrastructure, education, and waste industries. Stantec generates around $3.6 billion in annual revenues and is based in Edmonton, Canada.
On October 18th, 2022, Mueller Industries reported Q3 2022 results for the period ending September 24th, 2022. The business saw diluted earnings-per-share of $2.74, which beat analysts’ estimates by 39 cents. Net sales decreased 3.8% year-over-year to $944.8 million due to the absence of the businesses the company divested in 2021, and reduced copper prices.
Year-over-year sales growth of 22% from the value-added businesses couldn’t keep up with copper prices averaging 19% lower than they were last year, and copper tube and brass rod volumes declining 14% year-over-year. The business remains in a strong financial position with zero net debt and strong cash generation.
Click here to download our most recent Sure Analysis report on STN (preview of page 1 of 3 shown below):
Water Stock #2: Mueller Industries (MLI)
- 5-year expected annual returns: 13.8%
Mueller Industries manufactures and sells metal and plastic products around the world through its 3 segments: Piping Systems, Industrial Metals, and Climate.
The Piping Systems segment offers copper tubes, and plumbing-related fittings and it also resells steel pipes, brass, and other metal products to wholesalers in a variety of industries.
Source: Investor Presentation
The Industrial Metals segment manufactures brass, bronze, and copper alloy rods and other metal products for OEMs in the industrial, construction, HVAC, plumbing, and refrigeration markets.
The Climate segment offers valves, protection devices, and brass fittings for various OEMs in the commercial HVAC and refrigeration markets, high-pressure components, and accessories for the air-conditioning and refrigeration markets
According to management, most of Mueller’s businesses remain at capacity, and the business is seeing healthy backlogs. The business is in a strong financial position with zero net debt and strong cash generation.
Click here to download our most recent Sure Analysis report on MLI (preview of page 1 of 3 shown below):
Water Stock #1: Algonquin Power & Utilities Corp. (AQN)
- 5-year expected annual returns: 20.8%
Algonquin Power & Utilities Corp. trades on both the Toronto Stock Exchange and New York Stock Exchange under the ticker, AQN. The renewable power and utility company was founded in 1988. The company has increased its dividend every year since 2011.
It has two business segments: regulated utilities (natural gas, electric, and water) and non-regulated renewable energy (wind, solar, hydro, and thermal). Combined, its entire portfolio has 4.3 GW of generating capacity that it aims to achieve 75% renewable energy generation by 2023.
Source: Investor Presentation
Algonquin serves more than 1 million connections primarily in the U.S. and Canada. It also has renewable and clean energy facilities that are largely (about 82%) under long-term contracts of ~12 years with inflation escalations.
Algonquin reported its Q3 2022 results on 11/11/22. For the quarter, revenue rose 26% to $666.7 million, adjusted net earnings fell 25% to $73.5 million, adjusted earnings-per-share (“EPS”) fell 27% to $0.11, but adjusted EBITDA, a cash flow proxy, increased by 10% to $276.1 million, against Q3 2021.
Management noted that the quarterly results were impacted by higher interest rates and delays in the construction and completion of certain renewable projects due to the timing of tax incentives.
The pending Kentucky Power acquisition would add to the rate base of its regulated utilities fleet with an expected close in the second half of 2022. In October, AQN announced that it was performing capital recycling on four wind projects that would raise cash proceeds of $278 million and C$107 million. AQN reduced its 2022 EPS estimate to $0.66-$0.69.
Click here to download our most recent Sure Analysis report on AQN (preview of page 1 of 3 shown below):
Final Thoughts
Water could be one of the biggest investing themes over the next several decades. An increasing global population is only going to cause demand for water to rise in the future.
And, given the fact that water is a necessity of human life, demand for water should hold up extremely well, even during the worst recessions.
Therefore, young investors with a longer time horizon such as Millennials should consider water stocks.
These factors make water stocks appealing for risk-averse investors looking for stability from their stock investments.
Not all the water stocks on this list receive buy recommendations at this time, as some appear to be overvalued today. But all the water stocks on this list pay dividends and are likely to increase their dividends for many years in the future.
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