Will US Water Utilities See the Early-2016 Days Again?


Nov. 20 2020, Updated 4:47 p.m. ET

Water utilities losing shine

US water utilities saw one of the biggest stock rallies in the first half of 2016, rising even more sharply than electric utilities. But water utilities have lost most of their gains in the second half of the year, mostly due to their troubling valuations and the increased probability of an interest rate hike by the end of the year.

In this series, we’ll do a rundown of the recent performance of water utilities and discuss whether or not they could be an attractive option for investors going forward. We’ll consider the four biggest water utilities by market capitalization: American Water Works (AWK), Aqua America (WTR), American States Water (AWR), and California Water Service Group (CWT).

As the chart shows, many US water utilities are trading fairly higher than their early-2016 levels. Investors took shelter in these less risky stocks during the market turmoil earlier this year.

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Water utilities from an investor’s point of view

Investing in water utilities (CGW) could be a decent option for conservative investors, given their yields and stable stock movements, and their slow but steady earnings growth resembles that of electric utilities. But electric utilities (XLU) tend to yield more than double what water utilities yield.

That said, demand for water as a commodity is expected to rise substantially in coming years due to its limited availability. Rising populations, economic growth, and climate change are likely to put more pressure on already scarce water resources, and so technological advancements in water recycling and conservation will likely be significant. Investment in water technologies could thus bode well for these utilities’ growth.

Continue to the next part of this series for a closer look at our select group of major US water utilities.


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