American States Water Co. (AWR, Financial) is a decades-old utility company with a market capitalization of $1.76 billion. It has all the components of what you can call a really boring company. The utility company took 10 years to increase its $301 million annual revenues to $436 million, with a dividend yield of around 2%.
But the often-overlooked company has increased dividends for more than 61 years. There are not many companies around that have managed to consistently pay dividends for such a long time. According to 10 years of data, despite being in the business since 1929, American States Water is still able to increase its revenues. It may not be much, but its revenue continues to grow nonetheless.
It must also be noted the company was able to increase its revenues during the Great Recession as well. The recent drought in California did bring revenues down in the last two years, but the company still managed to hold on to its above-25% operating margin during that period.
In addition, the company signed a 50-year contract with Florida's Elgin Air Force Base in 2016 to maintain its water and wastewater systems. The total value of the contract is $510 million, or $10.2 million per year.Ă‚
Source: http://www.suredividend.com/awr/
During the recent quarter, American States Water paid $8.854 million in dividends, while net income was $12.701 million on operating income of $24.73 million. The payout ratio is less than 60%, and the company has plenty of room to continue increasing its dividends over the next several years. With revenues increasing at a steady rate, American States Water’s ability to increase dividends is as good as you can get.
Source: Dividend.com
As a water and electric utility company, American States Water’s moat is its existing network. This industry is one of the least prone to disruption because it is not easy for a new competitor to enter and start capturing market share. The company was here long before any of us were born, and will be here long after we are gone.
This is as defensive as a stock can get. The 2% yield is something dividend investors must consider because it will reduce a lot of risk in your portfolio.
Disclosure: I have no positions in the stock mentioned above and have no intention of initiating a position in the next 72 hours.
