On the first of this month we received a dividend from Aqua America (WTR) of 17.8 cents per share which gave us $45.51 in income (.178 X 255.652425 shares). We used that income to buy more shares since we have a DRIP setup for WTR.
This is the fourth dividend payment from WTR with no increase. The last dividend increase for WTR was in August of 2015 when the Company raised their dividend by 7.9%. The 4 previous increases were as follows:
- August 2014 – 8.6%
- August 2013 – 8.6%
- November 2012 – 6%
- November 2011 – 6.5%
This means we can probably expect to see a dividend increase this year. If we take a look at the historical payout ratio, we see that it has been trending downwards over time.
There’s no reason to think that we won’t get a dividend raise in the range of 6-8% this year. WTR has a dividend yield today of 2.1% so at the top range of our estimate this would change the yield to 2.27%. If we keep getting that 8% raise every year, it will take 5 years for our yield to exceed 3%. WTR’s current yield is sitting at around a 5-year low.
One thing we really like about WTR is their aggressive growth-through-acquisition strategy which has resulted in nearly 200 acquisitions and growth ventures in the last ten years. They have $1.1 billion slated for capital expenditures over the next 3 years which includes acquisitions. For 2016, they’ve already made 10 acquisitions.
WTR doesn’t seem to be that popular with retail investors surprisingly. Looking on Seeking Alpha, there just aren’t that many articles on WTR which is a proxy for retail investor’s interest. If you write about a company nobody wants to read about, you can’t make any money because you’re compensated based on page views. That’s one of the problems with Seeking Alpha. Now you see all kinds of clickbait headlines trying to get those page views.
One thing to note is that Aqua America is a very small company with a market cap that just barely exceeds $6 billion, yet it behaves as if it were much bigger. The ability to quickly absorb and integrate companies that you acquire is a skill that is typically found in much larger companies yet Aqua America seems to have a strong track record of pulling it off time after time. With the utility industry in the U.S. being highly fragmented, there’s no shortage of future acquisition opportunities for Aqua America and we’re very confident we’ll see a pay raise this year as a result of their consistent execution.