Water covers nearly three-fourths of the Earth's surface, but 97.5% of that is undrinkable seawater, and 70% of what remains is frozen in glaciers.
Climate change, pollution and mismanagement of water resources have already created problems supplying the world's 7 billion people with fresh drinking water. None of those problems are going away, and all are likely to get worse - the earth's population, for example, is expected to reach 9 billion by 2025.
At least 80 countries already are suffering from water shortages, and the United Nations (UN) estimates that 67% of the world population will be "water-stressed" by 2025.
Even parts of the United States have increasingly suffered from droughts and water shortages, particularly in the West and sections of the South, like Texas.
"Water isn't just the oil of the 21st century; water is the raw material for life, for everything," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "I truly believe, as we see this all play out, that water could end up being even pricier than oil - on a per-liter basis."
Just as companies like ExxonMobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) have profited from a high-demand commodity like oil, so too will many of today's water companies profit as fresh water becomes increasingly scarce.
Still, no one is quite sure when water company stocks will start to take off, so the smartest way to play this industry is to look for companies that pay you to wait by offering up a healthy dividend.
Fortunately, since many companies in the water business are utilities, quite a few fit this definition.
Here are seven water company stocks that are in a position to profit from the "blue gold" and that will put cash in your pocket in the meantime:
- Aqua America Inc. (NYSE: WTR): Aqua America is a holding company for a group of regulated utilities serving 3 million customers in 13 states ranging from Texas to Maine. Its dividend yield is 3% with a payout ratio of 60%. The stock is currently trading at about $21.95, with an average one-year price target of $24.25. Aqua America has already shown potential for growth - its earnings per share (EPS) and dividends have grown at an annual rate of 8% over the past five years.
- California Water Service Group (NYSE: CWT): This water company is a utility that serves California, Washington, New Mexico, and Hawaii. The dividend yield is 3.36% with a payout ratio of 63%. California Water Service has an impressive projected earnings growth of 30.4%. It currently trades around $18.30, with an average one-year price target of $20.60.
- Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE ADR: SBS): This Brazil-based company provides water and sewage services to 23.7 million people in 364 municipalities in the state of Sao Paulo, although that is not its only business. Analysts expect 6% growth for Sabesp over the next five years, although it could easily exceed that. Sabesp's dividend yield is 4.1%, with a low payout ratio of 26%. The stock currently trades around $52.37, with an average one-year price target of $74, a potential 41% gain. And one more tantalizing thing: the P/E is a mere 6.31.
- American Water Works Co. Inc. (NYSE: AWK): American Water Works provides water and wastewater services to 15 million people in 30 U.S. states and parts of Canada - a big swath of territory with lots of growth potential. This water company stock's dividend yield is 3.01% with a payout ratio of 52%. It currently trades at about $30.50, which is just $0.50 short of its 52-week high. The stock has an average one-year price target of $32.63.
- Veolia Environnement (NYSE ADR: VE): Water is just one of four major divisions in this France-based giant, the largest water company in the world based on revenue. Veolia trades at a price to book ratio of 0.73, indicating the value of the company's underlying assets exceeds its market price. It pays a dividend of $1.74, good for a whopping yield of 11.38%, although its payout ratio is a little high at 76%. Veolia trades at about $15.25, with an average one-year price target of $21.45, a potential gain of 40.7%.
- American States Water Co. (NYSE: AWR): This California-based utility provides water, electric, and contracted services in the United States. American States Water's dividend yield is 3.19%, with a payout ratio of 51%. And this water company has been around long enough to have a truly amazing dividends track record: it has paid a dividend every year since 1931, and has increased its payouts every year since 1953. American States Water trades at about $35.25, with an average one-year price target of $39.25.
- SJW Corp. (NYSE: SJW): SJW is a holding company that engages in the production, purchase, storage, purification, distribution, wholesale, and retail sale of water, mostly in the San Jose, CA area. It has a dividend yield of 2.88% and a payout ratio of 52%. Its price-to-earnings growth ratio (PEG) of 1.65 is among the lowest of all the water utilities, indicating it is among the better values at its current price. SJW stock trades at about $24, with an average one-year price target of $28.
News and Related Story Links:
- Money Morning:
Investing in Water: How to Profit From the World's Most Precious Commodity
- Money Morning:
Global Commodity Prices: Soaring Worldwide Population Growth and a Can't-Miss Profit Play
- Money Morning:
Developed and Emerging Nations Forced to Ante Up to Stem a Worldwide Water Shortage
- Motley Fool:
Water Shortages: Here Are the U.S. Companies to Watch
Water: The Ultimate Commodity
Tags: Water companies, water company stocks