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:
CWT – California Water Service Group
—-
Overview
California Water Service Group (CWT) is the third-largest publicly traded water utility in the United States, providing high-quality water and wastewater services to more than two million people in over 100 communities. The company operates under the following subsidiaries:
- California Water Service (Cal Water)
- Hawaii Water Service (Hawaii Water)
- New Mexico Water Service (New Mexico Water)
- Washington Water Service (Washington Water)
- Texas Water Service (Texas Water)
Per CWT, the company is one of only 11 investor-owned water utilities remaining in the United States. CWT was founded in 1926 and is headquartered in San Jose, California.
(Source: Company Website)
In addition to the main water services, the company also engages in the provision of non-regulated water-related services, including operating of municipally owned water systems, privately owned water, and recycled water distribution systems; water system operation, meter reading, and billing services to private companies and municipalities; leasing of communication antenna sites on its properties to telecommunication companies; and billing of optional third-party insurance programs to its residential customers, as well as provides lab services. (Source: Yahoo Finance)
—
Metrics:
Dividend Amount: $1.00
Dividend Yield: 1.88%
5 Year Dividend CAGR: 6.37%
Dividend Payout Ratio: 49.02%
Years of Dividend Increases: 55 Years
EPS: $2.04
P/E: 26.43
Analyst 5 Year Earnings Growth Estimate: 11.70%
—
Valuation:
Current Price: $53.22 (5/17/22)
DCF (10% RRR): $80.46
P/E Mean Reversion:$74.52
Dividend Yield Theory: $60.61
Average of the three: $71.86
Analyst 1 year Price Target: $57.75
—
Commentary:
CWT is an investor-owned water utility that is growing steadily through their regulated utilities in popular locations such as California and Texas. Water utilities are appealing to investors as they have regulated rates, which provide stability, provide essential and irreplaceable services, and have a consistent business model that provides for stable dividend growth. CWT’s dividend has been growing at a little over 6% for the past five years. The dividend is important to the company and they notate it throughout their website. They have 55 years of dividend growth.
As with other regulated utilities, the company can grow in two ways: acquisition of new clients through expansion and growth of the population, and by increasing the rates they charge for the services. This rate increase is restricted by the municipalities they operate in. Since they are essentially a legal monopoly in their service areas, they are restricted on how much they can charge. The company states that their current base rates for water is $1.95 and they expect it to rise to $2.74 by 2025.
One risk that CWT has is drought conditions in the West and Southwest United States. California is routinely in drought and the local communities regularly put in water restrictions, which would affect CWT revenue.
The company’s revenue and net income have continually gone up over the past 5 years, so it appears that the risk of drought has not yet affected the company’s financials. The stock has grown 57.46% over the past 5 years, compared to the S&P’s return of 70.81%, but the last year has seen a reduction of 5.45% and year to date has gone down 25.94%. The company has a Beta of 0.27 but this year the stock has been more volatile than the overall market.
CWT is a stable and growing company, with a long history of growth and paying a reliable dividend. The current price appears to be a decent value, showing it is currently undervalued based on the valuation methods shown above. The dividend is low and the growth is just average, so this company does not currently fit by personal investing criteria but it does appear to be a good value at this time.
Disclosure: I do not own shares of CWT.