Stocks to Invest In Now: Water Utilities 2015 and Beyond

INTRODUCTION:

Looking for a great stock to invest in for 2015? There is a stock investment that is superior to all others. And yet it remains a great secret. The stocks in this universe go largely unnoticed by the investing masses. It’s not exciting. It’s not the “next Apple”, the next touch screen, nor next holographic display. It has always been with us and will continue to be with us. It is as vital to humanity as life itself. It represents a monopoly in the truest since. There is only one kind of it. We can never find a replacement. Pharmaceutical companies won’t offer a generic version. There is only a finite amount of it in a useable form. It is THE MOST VALUABLE resource to a human being and yet we refuse to acknowledge it as the most glaringly obvious, most awesome investment of all time. Have you guessed it yet?

THE GREATEST RESOURCE:

One last clue. If you go without this for 3 days you will die! Dramatic, but TRUE. That’s right folks, we are talking about Water! That simple, safest, and therefore, the most beautiful investment of all time.

Think about it, everything around us changes and will change as humanity becomes more advanced. We are in a period of rapid advancement and evolution. At no period of human evolution have we had access to so much data, and more importantly so much communication. The leaps we will make in my lifetime and beyond will be astounding. New technologies will come and go, new advances in every area that we can think of will make old resources and technologies obsolete. This is why I suggest to you, that investing in water is the SAFEST and most consistent investment one can make. Perhaps there are more than two things certain in life, death, taxes, and WATER. But stop…and truly think, which one of those 3 will come first?

Take Oil as an example. Right now Oil is on the decline. Oil represented the great fortune for industrialists of the late 1800’s till present. It continues to power the worlds transportation and energy needs. However, we are seeing a monumental shift away from oil. Transportation is starting to use electricity, electricity that is gathered from the Sun. Synthetics are being processed in almost every area that will one day make even Oil obsolete. I know what you may be thinking, you can see the writings on the wall, the Sun will power the future, but will it? How many alternatives are there? Wind? Nuclear? Costal tides? Helium 3 mined from the moon? It gets really exotic and the choices are plentiful. With water, there is no choice.

And don’t get me started on anything dealing with electronics. Look at what a computer looked like 20 years ago. Oh and what did your cell phone look like just 10 years ago? Still feeling safe with that high tech stock you own (Not just picking on Apple)?

As you can see, all industries, and all products, along with ALL resources will change and become obsolete.

Well almost all…save WATER. No matter how advanced we become, we can never escape the fact that our bodies are composed of roughly 65% of it. We will drink and expel it for the rest of our lives. Everything in our food chain also depends on a fresh supply of water.

INVESTING IN WATER STOCKS

Talking about water made me thirsty and I’m back with a fresh glass to finish this post. What just happened? When I got this single glass of water out of my faucet, a company just made money. That’s right, the “water company” just made money! Duh, lol right? They pipe it in the faucets, and then they pipe it out the toilets to the waste water treatment plant. This glorious circle of life is where you must in invest. When looking for water stocks to invest in, invest in the pipeline process, not in the resource. The pipeline is sure and steady.

JUST GIVE ME THE STOCK ALREADY!

Drumroll….the stock that I personally invest in is AQUA AMERICA, ticker symbol WTR. Aqua America operates regulated water and wastewater utilities across America. It currently serves over 3 million customers across Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana and Virginia. It also serves as a raw water supplier for the natural gas drilling industry.

Acquisition Growth Strategy

Over the past decade, Aqua has bought over 200 water utilities, with 12 acquired in 2014 alone. It buys family operated water utilities as well as run down municipal utilities usually for pennies on the dollar. The company then goes in upgrades the infrastructure to reduce cost and improve quality, all while acquiring new customers.

DIVIDENDS, ACE IN THE HOLE!

Here is where things get really fun. And nothing says fun like the word “Dividend.” By the end of this, however you will see how my kind of “fun” means “rich.”

Aqua America currently pays a dividend of 2.5%. That may not seem like a lot, but stick with me. When looking to buy ANY dividend stock, don’t look at the yield, but look at how fast the dividend is increasing and how many years the company has done so!

Aqua America has raised its dividend every year except one for the past 24 years. And it doesn’t look like things are slowing down. In September 2014 they increased the dividend by 8.6%. Over the past 10 years, the company’s annualized dividend has increased at a 7.8% compound annual growth rate.

What does an 8% annualized growth rate do to a dividend? Well right now, WTR is paying a 2.5% annual dividend yield. If you invested today, and reinvested dividends every quarter, you would earn 45.59% at the end of 10 years. This means your annualized rate of return would be 4.56% per year just from dividends. This may be worth repeating before you scoff at 4.56%. This rate of return is just from dividends and doesn’t include stock growth, and from the extraordinary “bonus” below.

BUY SHARES WITHOUT FEES AT A 5% DISCOUNT?

Aqua America allows you to invest directly into the company, bypassing broker commission fees. How does it do this? Through its’ company sponsored Dividend Reinvestment Program (or DRIP). The irony abounds in a water company with a DRIP, DRIP program, but I digress!

You can get started at Aqua America’s website. At the bottom of the page you will find a way to setup internet account access through Aqua’s DRIP account administrator www.computershare.com. This DRIP program currently requires a $500 minimum opening balance. You can add as little as $50 a month to it a month, all for free.

HERE is the ultimate kicker. Your dividends will automatically be reinvested which are paid on both whole and fractional shares. This makes maximum use of your money; No fees and fully invested. To make things even better, your dividends are reinvested at a 5% DISCOUNT.

Consider a stock trading at $1.00. A 5% discount means you purchase at $0.95. However, the stock is still trading at $1.00. $0.05/$0.95 represents an immediate 5.26% return at market! Also consider the dividend of 2.5% and your returns are fast approaching 8% on dividends reinvested without even accounting for further dividend increases OR stock growth! SIMPLY INCREDIBLE! Feels like cheating doesn’t it?

SHARE BUYBACK = SHAREHOLDER LOVE!

Nothing gives shareholders confidence than a share buyback. This is the ultimate form of shareholder friendly love from the management company. Aqua America previously approved 685,348 share buyback program in 2014 which will wrap up in 2015. At this time an additional 1 million shares have been approved for repurchase.

When shares are repurchased, the number of outstanding shares on the market are reduced. When this happens, the relative ownership stake of each investor increases because their are fewer shares (or claims) on the earnings of the company. The end result is that earnings per share increases because their are fewer of them. As earnings per share increase, so does the stock.

STOCK PEFORMANCE PAST 10 YEARS:
WTR.Stock.10yr

Over the past 10 years, the stock has gained 81.04%. Divided by 10 years, this is roughly equal to a return of 8.1% per year. Interestingly the return over the past 5 years is 88.8%, or 17.76% per year. Which brings me to my next point…

Dollar Cost Average: You cannot time the market!

Dollar cost averaging is simply investing money consistently and periodically in a stock. This reduces risk and the stress of trying to “time” the market. Timing the market is usually a fools errand, and if you do have success it is likely from luck. With dollar cost averaging, you smooth out the ups and downs of the chart and find a median. More importantly, you are constantly investing new money. You get the best of both worlds from not trying to time the market. There is no money “waiting” for the next big drop in prices. At the same time, new money is constantly being invested and will take care of any drops in prices along the way.

Lastly, you want as much money as possible invested in this stock for the sheer dividend benefits. Having money waiting on the sidelines will do you no good with this strategy.

CONCLUSION: Total Performance from a water stock that will last a Lifetime.

stock market

If we take the lower number from above with a stock growth rate of 8.1% per year for the past 10 years, along with an annualized dividend return rate of 4.56% a year, we come up with an annualized rate of return of 12.66% over the long term. HOWEVER, this does not include your dividends reinvested at a 5% discount, nor does it include any stock rate growth on reinvested dividends! As mentioned early, your discounted reinvested dividends immediately receive a 5.26% return to market. Add on the 8.1% stock growth, and the 8% dividend growth rate, and you are receiving an additional return on reinvested dividends of a staggering 21.36%!

So what would the effective rate of return be? I’m sure we can all agree it is north of the 12.66% given, but lets just take this number. What do expert financial gurus say about 12%? Check out Dave Ramsey’s Tweet below:

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This stock IS a millionaire maker. Rerunning Dave’s calculation at 12.66%, investing $100 per month from age 25 to 65 would equal $1,258,000 on a mere $48,000 invested. The results of compounding interest truly are staggering. Albert Einstein said it best: “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

So what do you think? Are you ready to become a part of the greatest stock industry of all time? Are you ready to create generational wealth that will last you and your decedents a lifetime? I want to be that painting over the fireplace that my great great grandkids raise a glass to. What about you? If you have any questions or comments, don’t hesitate to leave them!

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