Lack of fresh, clean water has sparked riots and political unrest in third world nations, and these same problems plague industrialized countries as well. Earlier this year, Alabama, Florida and Georgia were battling in court over rights to the Chattahoochee River which provides water for residential, commercial, industrial and agricultural use in all three states. Clashes over this vital commodity will only get worse as worldwide demand increases. Underscoring the importance of clean, safe water, American Water Works (AWK) was named to the 2012 Dow Jones Sustainability North America Index this year. The largest water and waste water publically traded utility in the U.S., American Water Works serves approximately 15 million residential, commercial, industrial, public, and agricultural customers in the United States and Canada.
There are a lot of reasons to like this stock. The utility has steadily increased both revenues and profits over the past few years and chugs out dividend payments with boring regularity. Revenue for 2011 was significantly higher at $2.666 billion over 2010’s $2.555 billion; the utility pays a dividend of $1.00 for a 2.70% yield. Annual 2012 revenue is projected to come in at $2.89 billion. Like all utilities, American Water Works has a monopoly on the area they serve and the high barriers to entry along with stringent federal, state and Public Service Commission regulations effectively discourage competition. American Water Works closed yesterday at $36.90. Goldman Sachs analysts recently placed American Water Works on their Conviction Buy List and raised their price target to $42.00. American Water Works is expected to enjoy 8% yearly growth for the next five years and with water demands steadily increasing, should have little trouble meeting that goal.
The world runs on oil and despite solar, wind and nuclear alternatives, exploration and drilling activities are on the rise. Offshore oil and gas exploration carries considerable risks to the environment and to people working the rigs, but it also holds out the promise of very lucrative rewards. Seadrill (SDRL) posted very impressive 2Q 2012 numbers. Net income rose to $554 million as compared to 1Q 2012’s $439 million, and EPS jumped to $1.12 from $0.89, respectively. The company raised second quarter dividends from $0.82 to $0.84 on top of the first quarter increase from $0.80 to $0.82.
During the second quarter, Seadrill secured three new commitments for its ultradeep rigs valued at $4 billion, $1.1 billion and $1.6 billion each. The company's 66-rig fleet has close to a 100% rent rate, and daily rental rates run from $115,000 for tender barges up to $565,000 for drill ships. These rigs are designed to operate worldwide in any weather condition, and deep water semi-submersible drilling rigs are able to withstand the harsh environment found in the North Sea. Seadrill has been on an uptrend since June this year. Street analysts rate the company as strong buy/buy/hold. Seadrill stock closed at $39.66 yesterday, and analysts have set a stock target price of $46.00.
The demand for liquid gold in the forms of safe water and oil continues to rise. Both American Water Works and Seadrill are strategically positioned to capitalize on rising demand and reward stockholders with higher profits and increased dividends.