The Company in a Nutshell![](https://www.dividendstocksrock.com/wp-content/uploads/2019/12/AWR.png)
- AWR is a Dividend King, with 69 consecutive years with a dividend increase
- ~75% of water revenues are derived from residential and commercial customers.
- Revenue will grow following approval of water rate increase in 2023
Date Reviewed | 9/6/2024 |
Company Name | American States Water Co |
Symbol | AWR |
Sector | Utilities |
Industry | Utilities - Regulated Water |
Beta | 0.487 |
PRO Rating | 4 |
Dividend Safety | 5 |
Business Model
American States Water Company is a holding company. The Company’s segments include water, electric and contracted services. Within the segments, The Company has three principal business units: water and electric service utility operations conducted through its regulated utilities, Golden State Water Company (GSWC) and Bear Valley Electric Service, Inc. (BVES), respectively, and contracted services conducted through American States Utility Services, Inc. (ASUS) and its subsidiaries. GSWC is a public water utility engaged in the purchase, production, distribution and sale of water in 10 counties in the state of California. BVES is a public electric utility that distributes electricity in several San Bernardino County Mountain communities in California. It operates, maintains and performs construction activities, including renewal and replacement capital work on water and/or wastewater systems at various United States military bases pursuant.
Current price | 80.91 |
ROE | 16.75 % |
ROIC | 8.00 % |
Shareholder Yield | 0.25 % |
5-Yr Total Return | -3.15 % |
1-Yr Total Return | 1.60 % |
Next Earnings Date | 11-04-24 |
Latest Quarter Information
What the CEO said:
Certain matters discussed in this press release with regard to the company’s expectations may be forward-looking statements that involve risks and uncertainties.
What we say:
09-04-2024, American States Water disappointed the market with a weak quarter (revenue down 1%, EPS down 18%). The revenue decline was due to higher operating expenses and interest costs, as well as a decrease in gains generated on investments held for retirement plans due to market conditions. The decrease in the electric utility segment's earnings was attributed to not having new rates while awaiting the pending electric general rate case. The EPS decrease was primarily due to higher operating expenses and interest costs. The company also increased its quarterly cash dividend by 8.3% to $0.4655 per share, continuing its long-standing history of increasing dividends.
Investment Thesis
AWR is a well-managed company that sells essential goods, water and electricity. With more than 75% of its revenue coming from regulated businesses in California, it enjoys repeat purchases, a favorable regulatory environment, and stable cash flow. A water rate increase was approved in 2023, retroactively and valid for the years 2022-2024. This boost in revenue starting in 2023 will improve the modest revenue and EPS growth seen over the 5-years. In fairness, over the last 3 years, revenue was subject to the previous lower water rates, and AWR also made significant investments in its infrastructure during that period. Growth in residential and commercial customers in California depends on population growth. There is lots of potential for acquisitions since California is a highly fragmented market with very few public water companies.
AWR’s contracted services subsidiary (ASUS) provides water and wastewater services to 11 military bases acrosss the country through contracts that are valid for 50 years and that can be adjusted for inflation. ASUS currently represents about 23% of total revenue. As U.S. defense spending increases (projected to grow 2.34% annually until 2033), military bases will expand and new ones will be built. ASUS could become AWR’s most important growth avenue.
AWR’s current policy is a 7% compound annual dividend growth rate.
Dividend Triangle
5-Yr Rev. Growth | 6.40 % |
5-Yr EPS Growth | 14.35 % |
5-Yr Div Growth | 9.30 % |
Potential Risks
Over 75% of AWR’s revenue comes from regulated businesses, all in California; rate increases must be approved before taking effect. So far, California has proven a favorable regulatory environment, but it remains out of the hands of the company. Concentration of operations in California, where the population growth is slowing down, could hinder growth in the regulated business in the decades to come. This risk is somewhat mitigated by AWR’s contracted services (ASUS) revenue, which can fuel growth from increased U.S. defense spending, though it’ll face robust competition these contracts namely from American Water Works Company (AWK).
AWR must deal with the effects of climate change in California. Although the drought-stricken state has seen improved precipitation levels in the last year, much uncertainty remains. Drought can affect the water quality and force the company to get some of its water supply from wholesalers, thus reducing margins and profit. As for all capital-intensive companies, higher interest rates are a concern for AWR. Its debt has increased, but it still under control.
Obligated to uphold standards of water quality, AWR is also vulnerable to being fined or restricted if it fails in its obligation.
Debt/Equity | 1.15 |
Financial Debt to EBITDA (TTM) | 4.25 |
Current Ratio (Quarterly) | 1.25 |
Credit Score | 63 |
Dividend Growth Perspective
With a payout ratio slightly below those of its peers, AWR’s dividend is safe. The company aims for a 7% compound annual dividend growth rate for the long term. To do so, it will need stronger earnings growth, which will likely come with the 2023 water rate increase and possibly from growth in the contracted services business.
In 2024, the company rewarded its shareholders with a dividend increase of 8.4%, maintaining its high dividend growth standard.
Dividend ($) | 0 |
Dividend Yield Fwd | 2.30 % |
Dividend Frequency | Quarterly |
Average 5-Yr Yield | 1.75 % |
Payout Ratio (%) | 49.15 |
Cash Payout Ratio (%) | -71.80 |
DGR 1-Yr | 8.20 |
DGR 3-Yr | 8.95 |
DGR 5-Yr | 9.30 |
DGR Streak | 69 |
Chowder Score | 11.60 |
Next DVD PMT | 09-03-24 |
Valuation
Recent Annual Dividend Payment | $ 1.86 |
Expected Dividend Growth Rate Years 1-10 | 7.00% |
Expected Terminal Dividend Growth Rate | 6.00% |
Discount Rate | 9.00% |
Discount Rate (Horizontal) | |||
Margin of Safety | 8.00% | 9.00% | 10.00% |
20% Premium | $ 129.00 | $ 85.72 | $ 64.09 |
10% Premium | $ 118.25 | $ 78.58 | $ 58.75 |
Intrinsic Value | $ 107.50 | $ 71.43 | $ 53.41 |
10% Discount | $ 96.75 | $ 64.29 | $ 48.07 |
20% Discount | $ 86.00 | $ 57.15 | $ 42.73 |
Video Tutorial: How to Read the Stock Cards DDM Valuation
Market Cap | 3 B |
PE Ratio | 28.25 |
Fwd PE | 25.25 |
Price to Book Ratio | 3.65 |
DDM Valuation | 71.59 |
Average 5-Yr PE | 33.98 |
Value Score | 28 |
- All financial metrics are updated weekly.
- The DSR PRO rating and Dividend Safety Score are updated quarterly.
- The analysis (investment thesis, risk potential, dividend growth perspective and DDM calculation) is reviewed every 6 months.
- The PDF format includes only comments (no metrics) and is reviewed every 6 months.