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Summary Aqua America is a great stock to create balance in a portfolio that is too risk heavy . The company has an extremely high profit margin that outpaces those of competitors . A history of dividend increases and share buybacks provide increased value for shareholders . Targeted purchases in new markets help the company expand its customer base for future profitable returns. Lets admit it from the top, owning water utility stocks is not something that most people are going to brag about. Though they may not make for good party talk, they can in fact make for good returns. Aqua America (NYSE: WTR ) is one such stock that investors should consider adding to their portfolios. Balancing Out A Little Of The Risk The best way to think about Aqua America is as a risk balancing stock to add to one’s portfolio. The company certainly does not have an explosive growth future forecasted. As a matter of fact, consensus estimates have the company growing at less than five percent per year for at least the next five years. However, what Aqua America lacks in growth it more than makes up for in profit margin and dividend returns. Profits margins are important to water utility companies as they are a sign of how cost effectively they are delivering their product to the customers. Generally speaking, water and wastewater services are pretty straight forward. Once the infrastructure has been put in place, the company’s main responsibility is to ensure that everything remains running as it should. Aqua America has opened up a lead in profit margin over some of its main competitors. The following table demonstrates how they have an edge: Company Aqua America York Water Co (NASDAQ: YORW ) Connecticut Water SVC Inc. (NASDAQ: CTWS ) SJW Corp. (NYSE: SJW ) Profit Margin 28.63% 23.46% 21.96% 15.99% Aqua America has proven time and time again that it can deliver at a cost that is low. They have maintained strong profit margins, and this has helped them to consistently beat their earnings expectations. Dividend Increases And Stock Splits Galore Aqua America simply delivers when it comes to creating value for shareholders. While shareholders of some other companies wait around patiently for years to get news of a dividend offering, Aqua America shareholders can practically expect one every year. The company has literally delivered a dividend hike twenty-three times in the last twenty-two years according to this press release . In late 2013, following a stock split, the dividend went from $0.19 per share quarterly to $0.152 per share quarterly to match the split. However, by August of 2014 the company was paying $0.165 per share quarterly and hinting that it may raise the dividend again in the future. Aqua America delivers for their shareholders in another way as well. In just the last nineteen years, the company has had seven stock splits, the most recent being a 5 for 4 split that took place in September of 2013. This kind of activity may be mostly psychological for shareholders, but it sure does get people talking. Adding more shares to the company means that there must be a good amount of outside interest in purchasing those shares. Aqua America Likes To Purchase Back Shares Of Itself The company is not afraid to show confidence in its own stock. They show this by creating share buyback programs. They had just approved a plan to purchase back approximately 685,000 shares in 2014. Of that, the company has so far purchased back 560,000 and will finish up the rest this year. However, before they could even finish up this buyback program they announced another one. As soon as the first one is finished, they are going to start a repurchase program with the goal of buying back one million more shares. When a company is showing this much confidence in itself it is certainly worth taking note. Current shareholders are seeing the value of their shares increase as a result of the company purchasing back some shares for itself, and they have to be happy about this. The fact that the company is practically tripping over itself to buy back more and more shares is certainly very promising. However, this is not the only thing that Aqua America has been purchasing lately. New Assets In Ohio And North Carolina Expand Aqua America’s Reach The Pennsylvania based Aqua America does not just serve customers in that state. They actually have their hand in eight different states including Ohio and North Carolina. In these two states they just finished purchasing up some water systems to expand their reach deeper into the states. BusinessWire reports on these small but targeted purchases by saying this: Aqua Ohio purchased the assets of the Lake Mohawk and Lake Tomahawk water utilities that serve approximately 3,100 people in Northeastern Ohio for $1.76 million. And, Aqua North Carolina acquired the water system assets of the Honeycutt Water systems for $75,000. The systems serve about 260 people in the Glennburn, Knollwood and Wimbledon developments in Gaston County. Aqua will operate the systems from its western regional office in Denver, North Carolina. Aqua North Carolina serves more than 250,000 people in 51 counties statewide. As you can see, these were not wildly expensive purchases. They did not have to be. They were simply targeted acquisitions of new batches of customers in states that the company already operates in. They spend a little money right now and lock in a whole new crop of customers that they can rely on for years to come. Best of all, the company is not having to extend itself by expanding into states that it does not already exist in. These various factors make Aqua America a best of breed among water utility companies. It is a slow growth company that can help balance out a portfolio and provide more consistent and steady returns for the long term. Scalper1 News
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