Welcome to this series where I will be reviewing all the Dividend Kings and providing an overview and valuation calculation on the companies. Dividend Kings are a rare breed of Dividend Growth Companies. These companies have managed to raise their dividend for 50 or more years consecutively. Through all types of market swings, economic trouble, wars, recessions, these companies have seen it all and continue to reward shareholders with rising dividend income.
This week’s entry will focus on:
AWR – American States Water Company
Overview
American States Water Company (AWR) was founded in 1929 and is an electric and water service provider. It is the parent of Golden State Water Company, Bear Valley Electric Service, Inc. and American States Utility Services, Inc., serving over one million people in nine states.
Through its contracted services subsidiary, American States Utility Services, Inc. the company provides operations, maintenance and construction management services for water distribution and wastewater collection and treatment facilities located on eleven military bases throughout the country under 50-year privatization contracts with the U.S. government.
(Source: https://www.aswater.com/about-us)
Metrics:
Dividend Amount: $1.46
Dividend Yield: 1.61%
5 Year Dividend CAGR: 6.90%
Dividend Payout Ratio: 57.48%
Years of Dividend Increases: 68 Years
EPS: $2.54
P/E: 32.54
Analyst 5 Year Earnings Growth Estimate: 4.90%
Valuation:
Current Price: $90.22 (4/8/22)
DCF (10% RRR): $69.33
P/E Mean Reversion:$87.91
Dividend Yield Theory: $65.18
Average of the three: $74.14
Analyst 1 year Price Target: $88.40
Commentary:
AWR provides mission critical services to communities across the country, primarily in California but also provides services on military bases around the country. This is a great driver of future revenue as more municipalities turn to privatization to eliminate the cost of upkeep of these utility services. AWR contracts with these municipalities to take over these services for long time periods.
The stock has provided solid long term returns, with the 5 year price appreciation of 105.41%. The combined dividend yield plus dividend growth is lower than I would like but the company is very stable and the dividend growth rate is in line with the earnings growth rate. As an utility the investment thesis should be based on a slow and steady increase in revenue and income over time as is shown by the slow increase in top and bottom line on their financials. The dividend history of 68 years of consecutive growth confirms this slow and steady approach. As most of the rates AWR can charge are contracted or determined by the municipality, there is little that the company can do to raise revenue except expansion to new markets, like they are doing with the military bases, or request increased rates from the communities it serves.
The stock appears fully valued to overvalued at this time and waiting for a pullback may be needed before purchase.
Disclosure: I do not own shares of AWR.