Beat the Bears With This Dividend King

American States Water Company (AWR) was founded in 1929 and is a utility service provider that serves over 1 million people across 9 states. Today, the company provides various operational, maintenance, and construction management services for various water-related areas. 

Since 1931, the company has paid continuous dividends.  As a result of AWR’s success, they’re proud to have increased their dividend every year since 1954 (67 consecutive years), earning their place on the coveted Dividend Kings list.

American States Water provides service through three subsidiaries: 

• Golden State Water Company,
• Bear Valley Electric Service, Inc., and
• American States Utility Services, Inc.

Golden State Water Company is a water utility firm that serves more than 80 communities in northern and southern California.

Bear Valley Electric Service Inc. provides electricity to approximately 24,500 customers in the City of Big Bear Lake and adjacent communities.

American States Utility Services, Inc. provides various operational, maintenance, and construction management services for various water-related areas. The company has 50-year privatization contracts with the U.S. government to provide these services on eleven military bases throughout the country. 
 

Stockholder Information

BlackRock Fund Advisors is currently AWR’s largest shareholder with a 15.01% stake in the company. The second and third largest shareholders are The Vanguard Group, Inc. and SSgA Funds Management, Inc.
 

On May 3, 2022, American States Water Company reported first-quarter earnings. AWR's revenue for the most recent quarter was $108.57 Million, a decline of 7.25% year-over-year.  

The company reported earnings per share (EPS) of $0.38 for the quarter ending March 2022. It was a 26.2% decrease year-over-year. And, trailing twelve months EPS was $2.41.

Just before the most recent earnings release, AWR closed the session at $76.40 on May 3, 2022. American States Water’s most recent closing price on July 1, 2022, was $83.69 - up 2.67% from the previous trading session - and up 9.54% since its last release. Not only that -  the S&P 500 index is down 11.93% in the last 52 weeks, yet AWR is up 4.25%. No doubt, water is a product that will continue to be in demand regardless of any potential recession.

Dividend growth investors will appreciate the quarterly dividend of $0.365 per share, payable on June 1, 2022, representing a current (annualized) yield of 1.74%. The dividend payout ratio is currently 59.19% which seems pretty sustainable.  Not only that, but if history is to repeat itself, AWR should announce a dividend hike around the end of July 2022. 

Today, the company has a market cap of nearly $3.1 billion and a P/E ratio of 33.82 which is greater than many of its competitors, indicating the stock may be overvalued.

Looking forward, analysts expect American States Water to finish the year with an EPS of $2.59 - representing a 4.86% growth rate over the previous year.

Covered Call Play

Investors looking for additional yield can look to selling covered calls. A covered call gives the buyer the right, but not the obligation to buy 100 shares of the underlying stock from the option seller, at any point until expiration. Naturally, the covered call buyer will do this only if it’s advantageous to them. On the other hand, covered call sellers get to collect a premium for selling the option, and they can keep it no matter what happens to the price of the stock.

Take for example the AWR $85 call option strike that expires on Aug. 19, 2022. Covered call sellers could collect $0.40 a share ($40 for the contract) for an option that expires in 6 weeks. If AWR stays below the $85 strike price, the option will expire worthless, and the option seller can repeat the trade with a different strike and expiration. That said, if AWR trades above the $85 strike at expiration, the option seller will get their shares called away. But don’t fret - should it happen, the seller will have realized an annualized return of ~15%.

Final Thoughts

Water is a recession-resistant commodity, and AWR is one of those companies that pay out dividends to its shareholders like an old swiss watch. This consistent performance has made the company a popular choice for investors seeking reliable income. And, given the company's strong financial position and favorable industry trends, there is reason to believe that this streak will continue in the years to come. 

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