Dividend Kings In Focus: American States Water – Positive Dividend

Up to date on July seventh, 2025 by Felix Martinez

American States Water (AWR) has a formidable observe document of paying dividends to shareholders.

AWR is a part of the Dividend Kings, a gaggle of shares which have raised their payouts for a minimum of 50 consecutive years. You’ll be able to see all 55 Dividend Kings right here.

And, you may obtain the total checklist 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 the most effective” on the subject of 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 progress streak within the inventory market. No different firm includes a longer dividend progress streak than AWR. For context, the second-longest dividend progress streak belongs to Dover Company, which has maintained 69 consecutive years of annual dividend will increase.

This text will talk about the the explanation 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 Finest Water Shares To Purchase Now

The regulated water utility enterprise is by far a very powerful division, accounting for ~70% of the corporate’s complete revenues.

Supply: Investor Presentation

Whereas the regulated water enterprise generates most of AWR’s revenues, the non-regulated enterprise, which gives companies to water and wastewater techniques on army bases, can 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 firms. They spend monumental quantities on increasing and sustaining their infrastructure, accumulating excessive debt masses.

Consequently, they depend on regulatory authorities to approve price hikes yearly. These price hikes goal to assist utilities service their debt, however they normally end in modest income and earnings progress.

Authorities have incentives to supply engaging price hikes to utilities, encouraging them to proceed investing closely in infrastructure. However, authorities attempt to maintain customers glad, in order that they normally supply restricted price hikes.

AWR is a vibrant exception to the rule of gradual progress within the utility sector. Previously 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 progress tempo primarily because of the fabric price hikes it has acquired from regulatory authorities and its progress in its non-regulated enterprise. General, it has a much less “boring” enterprise mannequin than a typical utility firm.

Development Prospects

As talked about, utilities are usually slow-growth shares as a result of lackluster price hikes they obtain from regulatory authorities in trade for his or her hefty capital bills. AWR is superior to most utilities on this side, 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 during the last decade, one of many highest progress charges within the utility sector.

Furthermore, because of its constructive efficiency, resilience to macroeconomic headwinds, and vibrant outlook, AWR raised its dividend by 8.3% this yr. That is above the everyday dividend progress 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%.

It is usually outstanding that administration has set a objective of elevating the dividend by greater than 7% per yr on common over the long run.

Supply: Investor Presentation

Such a excessive dividend progress 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 steadiness sheet and an A+ credit standing, one of many highest within the utility trade.

Because of its wholesome payout ratio of ~59%, sturdy steadiness sheet, and sustained progress, AWR has a superb probability of delivering its bold objective of greater than 7% annual dividend progress 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 firms.

Aggressive Benefits & Recession Efficiency

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

It’s basically not possible for brand new rivals to enter the utility markets during which AWR operates.

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

As well as, whereas most firms undergo throughout recessions, utilities are among the many most resilient firms throughout such intervals, 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 attributable to the coronavirus pandemic.

AWR is likely one of the most resilient firms 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 anticipate AWR to generate earnings per share of $3.29 this yr. Consequently, 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, will be attributed, a minimum of partly, to the depressed rates of interest of the previous decade.

When rates of interest are low, income-oriented buyers face a problem in figuring out engaging yields out there. Thus, they view the dividend yields of utilities as extra engaging. Consequently, 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 consider this is because of buyers flocking to the corporate’s recession-proof money flows, predictable progress avenues, and glorious observe document of making shareholder worth, which the corporate has constantly demonstrated even through the harshest market environments.

Nonetheless, no person can assure this may stay the case indefinitely. The inventory may simply be priced decrease if buyers come to comprehend 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 honest 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 anticipate 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.

Remaining Ideas

AWR is far 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 a lot better than the low progress charges of most utilities.

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

Nonetheless, as a result of market’s excessive utility of all AWR’s virtues, shares might be overvalued at their present ranges. With a reasonable five-year anticipated complete return potential, AWR inventory receives a “maintain” score.

Further Studying

The next databases of shares comprise shares with very lengthy dividend or company histories, ripe for choice for dividend progress buyers.