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American States Water Company (AWR) Stock Analysis Pollie Style

 

As you, my dear reader, already know, I buy stocks several times a year. The minimum amount of a purchase is around $ 1,400. This to keep the fees within reasonable proportions.

At this moment I have approx. $110 free cash in my Vrijheid Fonds. And every month I donate fresh capital. In December I will be having enough cash for another purchase. So now is a good time to do some additional research for potential companies to buy.

So what to buy? If you look at my Vrijheid Fond, you see that there are no stocks in the Utility sector. So let’s take a look in this sector.

About one and a half year ago I did some research on some water stocks. In my humble opinion the best water stock at that time was AWR. So lets take a look at AWR today.

This analysis is on American States Water Company (AWR).

Company (from google finance): American States Water Company (AWR), is the parent company of Golden State Water Company (GSWC) and American States Utility Services, Inc. (ASUS) and its subsidiaries (Fort Bliss Water Services Company (FBWS), Terrapin Utility Services, Inc. (TUS), Old Dominion Utility Services, Inc. (ODUS), Palmetto State Utility Services, Inc. (PSUS) and Old North Utility Services, Inc. (ONUS)). AWR operates in three segments: water, electric and contracted services. Within the segments, AWR has two principal business units, water and electric service utility operations, conducted through GSWC, and contracted services conducted through ASUS and its subsidiaries. GSWC is a California public utility company engaged principally in the purchase, production and distribution of water in 75 communities in 10 counties in the State of California.

Can I explain this to a 10-year old? What Does This Company Do?
If you life in California, the water that comes out of your tap is produced by this company. They make sure the water is clean and safe to drink.

Dividend Aristocrat: American States Water Co. is paying Dividend for 61 years in a row! And is a Dividend Champion. It is number 1 on the CCC-list form David Fish! Duh! That’s a Pass!

Dividend Yield > 2.5%: The dividend Yield of AWR is 2,24%. It’s above the industry average of 2.1%. AWR has a healthy dividend that can offer investors higher returns if they choose to reinvest it. However the Yield is below the requirements of the Pollie-code, therefore it is a fail on the second Pollie-code.

Dividend payout <70%: The dividend payout is roughly 69%. This is below the maximum ratio. This also means that they can keep those dividend increases coming for a long time. Great! That’s what we DGI’s want. So also passed for this point.

DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 en 10 years are 9.2, 14.7, 10.4 and 6.5. With a 3 years DGR of around 15%. It is way above the requirements of the Pollie-code, so it is a pass.

P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. AWR has a current P/E ratio of 25.15. The industry average is 20.4. The P/E ratio is higher than the industry average and also higher than its 5-years average (19.2). Therefore it is a fail on the Pollie-code.

EPS > 0: The EPS is 1.62. So AWR also passed the sixth Pollie-Code

ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 12.4%. Another pass.

Market Cap. > 100M: No problem at this point. More than 1.518 $Mil. Another pass.

Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 12.6. So AWR, as a utility stock, also passed the ninth Pollie-code.

Stock price 52wk high-25%: The 52 wk high and low are: 42.40 and 33.57. This means that AWR will be in my buying zone when the stock price is below 40.19 ((42.40-33.57)*0,75 + 33.57). At this moment AWR is trading for $40.36. Just a little bit above the price of the Pollie-Code. Therefore it is a fail on the Pollie-Code

Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for AWR is 0.45.

Conclusion: When I look at the analysis, AWR passed 7 out of 10 from the Pollie-code. The Pollie-code that failed was the Yield, P/E-ratio and the current price. Considering all the data AWR is a great company. The DGR (3-years) of AWR is higher than my weighted average DGR of 6.5%. And the Beta is lower than the weighted average beta of 0.68. The yield however is below my weighted average yield of 3.5%. Okay the price is a little bit on the high side, but for the long run AWR is a nice addition. In my opinion it will be a nice addition to my Vrijheid Fonds.

What are you – the readers, thoughts on American States Water Company? Is it a buy? What Utility stock do you recommend?

Please comment on my analysis and thanks for stopping by!

Pollie

DISCLAIMER: I’M NOT A REGISTERED INVESTMENT ADVISER, INVESTMENT PROFESSIONAL, BROKERAGE FIRM OR INVESTMENT COMPANY. READERS ARE ADVISED THAT INFORMATION ON THE WEBSITE IS ISSUED SOLELY FOR INFORMATION PURPOSES AND NOT TO BE CONSTRUED AS AN OFFER OR RECOMMENDATION TO BUY, HOLD, OR SELL ANY SECURITIES. ALL INFORMATION, OPINIONS, AND ANALYSES INCLUDED ARE BASED ON SOURCES BELIEVED TO BE RELIABLE, BUT NO REPRESENTATION OR WARRANTY IS MADE CONCERNING ACCURACY, CORRECTNESS, TIMELINESS, OR APPROPRIATENESS. PLEASE CONSULT WITH AN INVESTMENT PROFESSIONAL BEFORE INVESTING ANY OF YOUR MONEY.

 

 

 

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6 thoughts on “American States Water Company (AWR) Stock Analysis Pollie Style

  1. Captain Dividend

    Thanks for the breakdown. AWR has had quite a run making that pesky P/E ratio pretty high unfortunately. I’ve always liked the safety of utilities. Personally I just bought NJR to replace my PNY shares.

  2. Stalflare

    Ciao Pollie,

    Nice to have you as a co-owner, I have got AWR quite early last year so I can only say good things about them. While utilities in gas and electricity have issues with strong competition, waterways are much harder to “deregulate” and live in a cocooned environment under certain points of view. This doesn’t mean that they will always be on the rise, coming interest rate hikes will put pressure on the stock price, but it’s still a great business and probably will open up opportunities to buy at lower prices.

    Ciao ciao

    Stal

  3. DivGuy

    I’m not sure how the California water crisis can impact on this company, but definitely something to think about. It can sure be positive as people will always need water, but it’s quite a big crisis over there…

    Cheers,

    Mike

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