American States Water (AWR) Investment and Debt Management Assistance – March 18, 2022

US States Water Company (AWR Free Report) has benefited from an expanding customer base, systematic investments in infrastructure upgrades, steady dividend increases and a strong credit rating. These are likely to boost long-term performance.

Zacks consensus estimate for American States Water earnings per share (EPS) in 2022 of $2.63 indicates growth of 6.5%. AWR’s current dividend yield of 1.7% is better than the Zacks S&P 500 Composite’s 1.48% yield.

Tailwinds

American States Water has a strong utility customer base. Its electricity and water service customers are growing at a slow but steady pace. In November 2021, a settlement was reached on all issues related to the 2022 annual revenue requirement, leaving only three of the items from the general rate case application filed in 2020 for the new water rates for 2022, 2023 and 2024. The new tariffs will help recover the amount invested to modernize and improve the infrastructure. AWR plans to invest between $140 million and $160 million in regulated utilities in 2022. These systematic investments are expected to grow the rate base from $752.2 million in 2018 to $1,152.3 million in 2022.

American States Water has sufficient liquidity to meet its short-term obligations. Standard and Poor’s Global Ratings confirmed A+ credit ratings for American States Water and Golden State Water. Additionally, AWR’s long-term debt was $412.2 million as of December 31, 2021, compared to $440.3 million as of December 31, 2020. A ratio greater than one indicates that the utility will be able to meet debt obligations in the near future without any difficulty.

American States Water has been a steady dividend payer since 1931 and has grown steadily every calendar year for the past 67 consecutive years. Consistent performance helps keep the momentum going for shareholders. AWR expects a CAGR of over 7% over the long term. The board approved a 9% increase in the first quarter dividend, bringing the total to 36.5 cents per share from 33.5 cents in 2021.

Headwinds

American States Water’s reliance on a single state for the majority of revenue and aging water infrastructure in parts of California are of concern as they will increase maintenance expenses and could negatively impact on profitability. Liquidity and operations could be adversely affected by changes in water supply costs as well as the risk of groundwater contamination in service territories. Additionally, implementing stringent environmental regulations can significantly increase operating costs.

Other actions to consider

Some other stocks in the same sector are Consolidated water (CWCO free report), American hydraulic works (AWK free report) and Essential utilities (WTRG free report).

The Zacks consensus estimate for 2022 EPS for Consolidated Water, American Water Works and Essential Utilities rose 76.5%, 4.7% and 6.6% year-over-year, respectively.

Long-term earnings growth for Consolidated Water, American Water Works and Essential Utilities is projected at 8%, 8.1% and 6.1%, respectively.

The current dividend yield of CWCO, AWK, and WTRG of 3.3%, 1.5%, and 2.3%, respectively, is better than the Zacks S&P 500 Composite yield of 1.48%.