Thursday, January 10, 2019

Recent Buy, January 2019

Shutdown Gremlin here to talk about a recent buy.  It is getting cold here in the DC area both inside and out; thanks to the government shutdown and a nice cold front.  The shutdown has been unfortunate as it impacts a significant number of people in the area, including friends and family, most of whom are not even direct Federal employees.  You would think that a shutdown would happen over something more valuable than $5B, but its not.  Which is comical, considering most companies I hold in my accounts are worth more than $5B, and indeed many have that much cash on hand or generate it in a quarter!  I digress, whether you like the movie Fences or if you prefer Wide Open Spaces by the Dixie Chicks - I can assure that neither can be built or enjoyed while stuff is shutdown.

So getting past the shutdown, I had accumulated solid amount of cash in my IRA account and decided to use it to take advantage of some low prices.  Mr. Market has been a fidgety mess since December, so its high time to let the gravity of low prices do some of the hard work for me.  So let's see what I bought.

Yesterday, I added shares of Aqua America (WTR) in my IRA account.  I bought 32 shares, with a total cost of $1,075.88 ($33.40 / share, plus commission).  The current yield is 2.61%. For a detailed summary of their history, etc. please visit: WTR's Seeking Alpha Profile.

The only other utility I currently own is Dominion Energy (D).  WTR is the only water utility in my portfolio.  Potable water itself is not something, at least not in urban areas, that can be substituted easily.  Electrical utilities face pressure from renewable energy, improved efficiencies of electronics, emissions targets, and potential pressure from competitors like natural gas for heat and cooking (my house is electric for the record on both).  Pressures such as those do not really impact the water utilities in a meaningful way.

WTR itself does not boast a massive yield, but has had a couple of decades of 7% dividend increases annually.  Its current yield is one the highest I have seen in the last few years.  WTR has also been expanding its reach, adding numerous local water utilities to its portfolio.  I really like the geographic reach, the industry, and the history of the company.

However, there is some risk associated with the industry especially, capital expenditures (Capex).  The Capex for any utility is high, but for water utilities its even higher.  Water is a heavy and difficult item to move long distances relative to items like electricity or gas (though humans are excellent at engineering and figured them all out).  Also a lot of water infrastructure was built before WWII, especially during the Great Depression.  Old infrastructure leads to higher failure and loss rates.  This will improve over time, but it will be a constant drag on the industry.  Not to mention older infrastructure can effect water quality as seen in Flint, Michigan.  Still its a risk I feel is acceptable - even though I routinely hear of water main failures in the DC area where ~100 year old terracotta or wooden (yes, I am not shitting you on those materials) pipes break.

This purchase will add $28~ to my forward 12 month dividend income.

I will update my portfolio page at the end of the month.

What do you think of WTR?

- Gremlin
- Long WTR, D

4 comments:

  1. I haven't looked into WTR but I guess a water utility is a solid business! Good luck with your purchase.

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    1. DD,

      Thanks for the comment. I get not having taken a look, there are what ~800 companies on the CCC list?! Good hunting.

      - Gremlin

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  2. Not a bad name to add to a dividend portfolio. I looked at the water utilities a long time ago but have yet to hold any. WTR, AWR and CWT come to mind. Water utilities are a low growth but very stable and necessary business in good times and bad. For now I am sticking with my ED, SO and D in the ute space. While you mention renewable energy as a potential pressure on traditional utes it should also be mentioned that many have their hand in those spaces as well. Keep the buying coming!!!

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    1. Keith,

      I agree with your assessment, and I would add AWK to that list. The electric Utes do have a hand in renewable energy and should not be as affected as people believe, but the major different is I could see them losing some rural customers with it. Water utilities often have few if any rural customers as most people are already on wells. However, electric Utes in big metro areas (like D and ED) have captive audiences in large high rises ... so they will be just fine! Though increased energy efficiency is one that should be looked at more - NGG over in the UK is a good example.

      Thanks for the comment!
      - Gremlin

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