Best Water Stocks Right Now

Read our Advertiser Disclosure.
Contributor, Benzinga
August 3, 2023

Invest in the best water stocks and other assets with Interactive Brokers.

Water is an essential resource that people need to survive. The need for water creates a constant level of demand for the resource. The predictable demand results in stable dividends from water companies. Some of these utility companies also appreciate over time while providing a lower-risk opportunity than other sectors.

7 Best Water Stocks

Investors looking for promising water stocks may want to consider these seven top picks.

1. Essential Utilities Inc. (NYSE: WTRG)

Essential Utilities shares have been down for the past year, but the water utility company looks more reasonable at its current price point. The stock has a 24 price-to earnings (P/E) ratio and recently raised its dividend by 7% year-over-year. The company provides water for residential, commercial and industrial needs. It also has wastewater and natural gas customers.

2. York Water Co. (NASDAQ: YORW)

York Water is a microcap company with a market cap of a little below $600 million. Shares have a 2% dividend yield and 30 P/E ratio. Investors have seen shares rise by 39% over the past five years. The investor-owned utility was founded in 1816 and has the longest record of consecutive dividends since 1816. The company impounds, purifies and distributes water. The company serves people in 54 municipalities in south-central Pennsylvania. The company has roughly 75,000 service water and wastewater connections.

3. American Water Works Company Inc. (NYSE: AWK)

American Water Works is the largest water company in the United States. The company provides drinking water and wastewater services to over 14 million people in 14 states and 18 military installations. The company has a $28 billion market cap and has increased by 65% over the past five years. The stock has a 30 P/E ratio and a 2% dividend yield. American Water Works reported 17.1% year-over-year revenue growth and 28.4% year-over-year net income growth in the second quarter.

4. Middlesex Water Co. (NASDAQ: MSEX)

Middlesex Water shares are flat year-to-date but have rallied by 87% over the past five years. The stock has a 38 P/E ratio and a 1.57% dividend yield. Middlesex Water is a water utility company that has been around since 1897. The company’s Q2 results indicated revenue increased by 7.9% year-over-year. Net income went up by 11.6% year-over-year, helping the company deliver another dividend to shareholders. The quarterly dividend currently stands at $0.3125 per share, which is a good improvement from a quarterly dividend of $0.24 per share in 2019. The company addresses residential, commercial and municipal water and wastewater needs.

5. Global Water Resources Inc. (NASDAQ: GWRS)

Global Water Resources is a micro-cap with a $300 million market cap, a 42 P/E ratio and a 2.30% dividend yield. Shares are up by 34% over the past five years. Global Water Resources is a pure-play water resources company that owns and manages water utilities located near Phoenix, Arizona. The company achieved 30.9% year-over-year revenue growth in the first quarter.

6. Ecolab Inc. (NYSE: ECL)

Ecolab is a water technology company that delivers solutions to purify and cleanse water. Shares are up by 26% year-to-date and have a 45 P/E ratio. In the second quarter, Ecolab reported 8% year-over-year revenue growth and 7% year-over-year net income growth. In a presentation to investors, Ecolab stated that it expects to maintain strengthening performance despite a challenging macro environment. Resilience during economic uncertainty can help this stock be more resilient than stocks in other sectors during recessions.

7. Xylem Inc. (NYSE: XYL)

Xylem shares are slightly up for the year and have gained 48% over the past five years. The American water technology provider specializes in residential, commercial, agricultural and industrial water. The company also serves government agencies. Xylem has a $27 billion market cap and does business in over 150 countries. The company reported 26% year-over-year revenue growth in the second quarter and raised its full-year guidance. Xylem expanded its market share through the recent acquisition of Evoqua through an all-stock transaction valued at $7.5 billion. 

What is a Water Stock?

A water stock is a company that benefits from the continuous demand for water. Some of these stocks perform better than others because of their geographic locations, services provided and other factors.

Benefits of Investing in Water Stocks

Water stocks are known for reliable earnings and dividends. You can earn steady cash flow from these stocks and reinvest them into more shares. Some of these stocks have been paying dividends for over 100 years and have survived various economic cycles. The world needs water utilities, and water stocks allow investors to benefit from this permanent need.

How to Invest in Water Stocks

You can invest in many types of water stocks. Investors can choose from individual stocks or ETFs. However, the broker you choose is also important. Picking the right broker will give you more choices and lower fees. These are some of the top brokers to consider if you want to invest in water stocks.

Factors to Consider When Investing in Water Stocks

Ready to dive into water stocks? While these assets can help with portfolio diversification, you should consider the following factors before getting started.

Companies Financial Performance

Investors should look at a company’s revenue and net income growth. These numbers help gauge a company’s sustainability and ability to gain market share. Looking at guidance for the year can help investors know what to anticipate moving forward.

Regulatory Environment

Regulations can impact a utility company’s costs which get passed to consumers. These policies can also influence a utility company's capacity to operate in an area. Water companies must receive approval before they can build new plants. A more difficult regulatory process can slow down project development. However, loose regulation can result in dangerous construction. Regulations within the industry can impact stock prices.

Geographical Diversification

Most water stocks have their resources concentrated within a few states. These stocks heavily depend on that state or city’s ability to keep residents and achieve population growth. Population declines in a major city can hurt a water utility company that has most of its resources near that city. Water companies with resources spread throughout the United States and different parts of the world are more protected from a few areas experiencing population declines.

The water industry has several driving forces, such as population growth, infrastructure, and technological trends. If you invest in these stocks, you should monitor the water industry and look for updates. Companies may mention these trends in their earnings calls and in press releases. 

Diversify Your Portfolio with Water Stocks

Water stocks can offer stable cash flow and appreciation over time. These assets can give your portfolio extra diversification, which can minimize risk and expose your portfolio to more opportunities. Investors should consider their risk tolerance and financial objectives before investing in water stocks.

Frequently Asked Questions

Q

Are water stocks a good investment?

A

Water stocks can be a good investment for investors seeking stable dividend payments.

Q

Is water the next big investment?

A

Water is an investment opportunity that can generate returns, but it may not be the best investment for high-growth investors. Water stocks are primarily for investors who want less risk.

Q

What is the largest water company in the U.S.?

A

The largest water company in the U.S. is American Water Works.

Best Water Stocks Methodology

The best water stocks methodology involved selecting profitable water stocks with a good history of paying dividends. The list includes a mix of microcap and large-cap companies.

About Marc Guberti

Marc Guberti is an investing writer passionate about helping people learn more about money management, investing and finance. He has more than 10 years of writing experience focused on finance and digital marketing. His work has been published in U.S. News & World Report, USA Today, InvestorPlace and other publications.