Tag Archives: connecticut

Dividend Growth Stock Overview: Connecticut Water Service, Inc.

Summary CTWS provides water service to 123,000 customers in Connecticut and Maine. The water and wastewater utility segment provides over 90% of its income. The company has increased dividends since 1970. Over the last two decades, CTWS has grown its dividend at less than 2% annually. CTWS has a payout ratio of 55%, and the stock currently yields 3%. About Connecticut Water Service Connecticut Water Service, Inc. (NASDAQ: CTWS ) provides water utility services to over 123,000 customers across portions of Connecticut and Maine. The company employs 265 people and is headquartered in southeastern Connecticut. The company has 5 wholly owned subsidiaries, two of which cover Connecticut Water’s regulated utility business. The Connecticut Water Company and The Maine Water Company serve a population of about 400,000 people in their respective service areas. The Connecticut Water Company is the company’s original business, while The Maine Water Company was formerly Aqua America’s Aqua Maine subsidiary. The subsidiary was acquired at the beginning of 2012 for $35.6 million. Connecticut Water Services’ business is organized into three segments: Water Activities, Real Estate Transactions, and Services and Rentals. The Water Activities segment covers Connecticut Water’s regulated companies’ activities; the segment includes 2,100 miles of water mains, and a reservoir storage capacity of 9.4 billion gallons. The segment’s 239 active wells and 25 surface water sources is capable of supplying 176 million gallons per day. This segment provided 93% of Connecticut Water’s total net income in 2014. The Real Estate Transactions segment is responsible for disposing of Connecticut Water’s real estate holdings when they no longer serve the company’s needs. The company will sell or donate for income tax benefits the real estate holdings. This segment’s contribution to the total company’s net income is negligible; in 2014, this segment earned $50,000. The Services and Rentals segment provides contracted services to other water and wastewater utilities, like operating facilities under contract. This segment is also responsible for marketing and operating the optional service line protection program offered by Connecticut Water, which covers the cost of repairs to a broken water service line. At the end of 2014, 20,000 customers had signed up for the program in Connecticut and 2,000 had signed up in Maine. In general, this segment provides 7 – 10% of the company’s total net income; it was 7% in 2014. In 2014, Connecticut Water earned a total of $21.3 million on $94.0 million in revenues, numbers that were up 16.7% and 2.8%, respectively. The large increase in income was due an authorized increase in water rates and a reduction in income taxes. Earnings per share were up commensurately by 16.1% to $1.95. With the current annualized dividend of $1.07, the company’s current payout ratio is 54.9%. The company’s book value increased by 5% to $18.83 at the end of 2014. The company’s debt stayed flat year-over-year; the company has a debt-to-equity ratio of 84%. The company has authorized a stock repurchase program that allows for the purchase of up to 10% of the company’s total outstanding shares. The company has not purchased any shares under the program and stated in its 2014 10-K filing that it has no plans to do so. The company is a member of the Russell 2000 index and trades under the ticker symbol CTWS. Dividend and Stock Split History (click to enlarge) Connecticut Water Service has compounded dividends at about 2.7% since 2010. Connecticut Water has increased dividends since 1970. The company regularly announces increases in mid-August, with the stock going ex-dividend at the end of August. In August 2015, Connecticut Water announced a 3.9% increase in its dividend to an annualized rate of $1.07 per share. Connecticut Water should announce its 46th annual dividend increase in August 2016. Connecticut Water has grown its dividend extremely slowly over its history. For the last 20 years, the company has increased the year-over-year quarterly dividend by no more than a penny, resulting in a 5-year dividend growth rate of 2.68%. Longer term, the dividend growth rates are even slower, with 10-year and 20-year dividend growth rates of 2.20% and 1.72%, respectively. The company has split its stock twice, both times 3-for-2. The most recent stock split occurred in September 2001. Prior to that, Connecticut Water split its stock in September 1998. For each share purchased prior to September 1998, you would now have 2.25 shares of Connecticut Water stock. Over the 5 years ending on December 31, 2014, Connecticut Water Service stock appreciated at an annualized rate of 11.28%, from a split-adjusted $20.97 to $35.78. This underperformed the 13.0% compounded return of the S&P 500 and the 14.0% compounded return of the Russell 2000 Small Cap indices over the same period. Direct Purchase and Dividend Reinvestment Plans Connecticut Water Service has both direct purchase and dividend reinvestment plans. You must already be an investor in Connecticut Water Service to participate in the plans. The minimum amount for the direct purchase plan is $25. The dividend reinvestment plan allows for partial reinvestment of dividends. The plans’ fee structures are somewhat favorable for investors, with the company picking up all costs on stock purchases. However, when you sell your shares you’ll pay a sales commission of $15. In addition, if you withdraw from the dividend reinvestment plan completely, you will pay a termination fee of $35. All fees will be deducted from the stock sales proceeds. Helpful Links Connecticut Water Service’s Investor Relations Website Current quote and financial summary for Connecticut Water Service (finviz.com) Information on the direct purchase and dividend reinvestment plans for Connecticut Water Service Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

There’s A Reason Utilities Are On The Monopoly Board, I Just Bought One

Summary Today I am going to stay on the Monopoly board and discuss a close cousin to REITs, Utilities. I see strong correlations to real estate and utilities – they both deliver essential services measured by a long runway for demand. There’s a reason utilities are on the Monopoly board… you can’t win the game by owning just real estate. Many of you know me as a real estate analyst, and while around 90% of my research is in the REIT sector, I occasionally drift outside of my circle of competence into other asset sectors. Today, I am going to stay on the Monopoly board, though, and discuss a close cousin to REITs, Utilities. You see, I need to diversify my holdings into other dividend-paying stocks, and while I’m attracted to the short and mid-term forecast for US real estate, I know it’s important not to hold all of my eggs in one basket. In addition, I see strong correlations to real estate and utilities – they both deliver essential services measured by a long runway for demand. Arguably, utilities are much more stable over the long term, as the asset class is generally consider to be the lowest-risk compared with the overall stock market. Don’t worry. I will continue my “day job” of analyzing REITs, but I wanted to write this article for two purposes: (1) I wanted to tell you about a stock I recently added to my portfolio; and (2) I wanted to provide you with the research on this selection. I recognize that the long-term capital appreciation is limited with my new stock selection; however, my reasons for the pick will be summarized below. All About Connecticut Water Connecticut Water Service, Inc. (NASDAQ: CTWS ) was founded in 1956, and is headquartered in Clinton, Connecticut. The company serves nearly 125,500 customers, which is around 400,000 people, in 56 towns in Connecticut and Maine. Around 93% of the company’s net income is attributable to regulated operations, and there are two subsidiaries: Connecticut Water Company and Maine Water Company. Around 90% of the company’s business is residential, and the business has over 2,100 miles of pipeline. Here’s a snapshot of the company’s geographic representation in Connecticut (around $297 million in revenue as of 9/30/14): Also, more recently, Connecticut Water has extended operations in Maine, where the company generated around $51 million in revenue (as of 9-30-14): Since 2012, Connecticut Water acquired around 32,000 new customers (36% growth) through investments in Aqua Maine and Biddeford & Saco Water Company. Over the last 25 years, the company has purchased 60 total water systems (40 of these over the last 7 years). The water market is highly fragmented, as the company estimates that there are over 800 separate water systems and 300 wastewater operations, making the Connecticut and Maine ripe markets for consolidation. An Incredibly Stable Dividend Alternative As I side, I focus on REITs, but I know it’s also important to maintain a diversified investment portfolio. Consequently, I decided to pursue limited exposure in the Utilities sector. I currently own Consolidated Edison (NYSE: ED ), and I have been closely monitoring Duke Energy (NYSE: DUK ) and Piedmont Natural Gas (NYSE: PNY ), both in my backyard (I live in South Carolina). Last week, I attended the World MoneyShow in Orlando, and I listened to Connecticut Water’s CEO Eric Thornburg explain his company’s business model. One of the primary attractions to his company’s business model (as he explained) is the powerful earnings platform. For example, take a look at the company’s more recent revenue history: (click to enlarge) Now compare the above-referenced income history with the earnings per share history: (click to enlarge) Perhaps the most impressive trend is the company’s dividend history – Connecticut Water has paid 234 consecutive quarterly dividends without interruption or reduction. Even more impressive than that, the company has increased its dividend payment for over 45 years in a row. (click to enlarge) Small Cap, Big Credit Rating Connecticut Water is a small-cap utility with a market cap of around $400 million. Here’s a snapshot of the company’s year-over-year trading history: (click to enlarge) As of January 2015, it is rated A by Standard & Poor’s, and as illustrated below, the company has a well-balanced debt-to-equity ratio (with no near-term debt maturities): (click to enlarge) The company has assets of around $646 million and debt of around $173 million. Here’s a snapshot of its balance sheet: (click to enlarge) Enterprise Value is around $534 million: (click to enlarge) I’m Turning on the Spigot Connecticut Water offers a compelling opportunity for investing in a conservative growth stock with a proven track record for executing accretive acquisitions. This selection is seemingly more conservative than most of the other stocks that I write about; however, I am targeting a regionally focused utility that offers diversification and scale. I was equally impressed with the management team (with an average of 25 years of utility experience), and especially the insight provided by the CEO at the World MoneyShow last week. He fielded several questions from the audience, and tactfully responded with well-articulated “sleep well at night” commentary. As evidenced by the F.A.S.T. Graph below, Connecticut Water’s historical earnings performance meets my criteria for quality: (click to enlarge) Now, let’s look at F.A.S.T. Graph’s forecasting chart (below). As you can see, the shares are trading at $36.14 (with a P/E multiple of 19.2x). Assuming a target of 21x P/E at year-end 2015, the shares could grow by ~14% (to $41.79), translating to an annualized total return of 18.75%. Of course, I have to remember that the potential for long-term share price appreciation is limited with utilities stocks. I much more confident in the dividend growth – a record that is unblemished due to the high-quality balance sheet and sound dividend payout ratio (of 59%). (click to enlarge) In closing, I know that utilities stocks tend to hold up better in falling markets, since investors are usually in less of a rush to sell their lower-risk investments when the broader environment curdles. Accordingly, remember that utilities are more risky than most asset classes within the bond market, but they are generally seen as being lower-risk compared to the overall stock market. There’s a reason utilities are on the Monopoly board… you can’t win the game by owning just real estate. The secret is to invest in a broad portfolio of dividend-paying stocks. Connecticut Water is sound utility selection that should provide me with very predictable dividend income, and by reinvesting all of the dividends, I expect to “sleep well at night”. (Remember: Connecticut Water is a small-cap stock, so investors should limit exposure). For more information on Connecticut Water’s DRIP program, click HERE . (click to enlarge) Forbes Real Estate Investor : For more information, check out my newsletter HERE . Sources : Yahoo Finance, F.A.ST. Graphs, and CTWS Investor Presentation. Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended. Disclosure: The author is long O, DLR, VTR, HTA, STAG, CSG, GPT, ROIC, HCN, OHI, LXP, KIM, WPC, DOC, UDF, EXR, MYCC, BX, TCO, ED, CTWS. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.