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Water coming out of a pipe

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Water Utility Giant With 10+ Years of Dividend Growth Added to Best Dividend Stocks List

Aaron Levitt Mar 24, 2020


When it comes to steady dividends, boring continues to outweigh otherwise exciting news – and nothing could be more “boring” than a tall glass of ice-cold water. We don’t often think about where our water comes from when we turn on our taps or take a shower. But the reality is water can be a steady cash cow, especially, if you select our new Best Dividend Stocks List pick.

Founded in the late 1800s, our latest pick has grown into one of the largest investor-owned water utilities in the country. Thanks to smart M&A, our pick has also been able to expand as many cash-strapped municipalities have begun outsourcing operations of their wastewater treatment plans or outright selling them. Many of these sales can be considered bolt-on acquisitions that instantly add value and cash flows. And while heavily regulated, the steadfastness of these cash flows and revenues cannot be beaten when it comes to dividend stability.

But our pick offers plenty of growth potential as well.

That’s because it is a defense contractor on the sly. Clearly, it doesn’t build missiles or tanks, but it does provide water and treatment services for various U.S. military bases. Military bases aren’t allowed to tap into public systems and they often operate their own treatment facilities on site. Our new pick will run these facilities for a fee. And since the military has different needs and tolerances than the general public, the fees are pretty hefty. The contracts are often long, and they come with much higher margins than running municipal water plants. This backlog in government services has provided our pick with plenty of extra oomph when it comes to earnings and cash flows – as have its water operations in the energy, chemical and industrial sectors.

All of this has allowed our pick to grow its quarterly payout by 150% since its IPO in 2008.

With the markets going haywire, the steadfastness and growth of our new pick is exactly what investors need to get through the malaise of the economic situation.

To summarize, here are five reasons why you should own this stock:

1. One of the largest water utilities in the nation, serving over 47 states.
2. Benefits from defense contracts and other non-regulated water services to boost profitability further.
3. Able to realize a nearly 9% increase in EPS last year – very strong for a so-called boring water utility.
4. Acquisitions and M&A continue to fuel bolt-on growth.
5. Healthy payout ratio of 52% and growing yield of 1.99%.

Removal of a Semiconductor Name

With COVID-19 having echoing effects globally, technology firms have been particularly hit hard. This has been especially true for stocks that provide the backbone to the tech industry. And, unfortunately, that includes our pick in the semiconductor sector. As one of the biggest makers of chips for other semiconductor groups, our pick has seen orders decline and revenues plunge. This has sent investors to the exit doors, and it reduces its Relative Strength score to below our required range for our coveted list. As a result, we’ve been forced to remove the stock.

Our Best Dividend Stocks List has 20 of the highest-rated stocks by our proprietary rating system. Go Premium to find out the entire list.

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