There is no question that, along with population increases around the world, global demand for fresh water will rise exponentially. It is often said that many border disputes and future wars will be fought, not for oil, rather for a clean and reliable water supply. Factor in population increases, aging infrastructure, increased demand from agricultural applications and contamination issues and you are looking at a potential opportunity and windfall for water related companies to take advantage.
There are many companies in the water resources space with several of them paying long time and increasing dividends. The following companies featured will focus on three distinct segments of the water resources sector including, water treatment, water technology and irrigation.
First up is a stock that I’m sure will get the high yield dividend bloggers excited, Veolia Environnement S.A. (VE). VE operates in three distinct segments one of which deals with drinking water and wastewater management, water distribution, water and wastewater treatment and manufacturing of water treatment equipment. VE currently offers a very high yield of 4.90% which is currently not covered by cash flow as its earning per share for the last twelve months is $-0.40. Still, if looking for a short term high yield play VE might be a reasonable option.
Next in the water treatment space is Ecolab Inc. (ECL). ECL provides water technologies and water treatment needs for the petroleum industry in both upstream and downstream applications. ECL currently yields just 1.00% but has an equally low payout ratio of only 31.1% making the current dividend safe. Another selling point for ECL is its long history of dividend growth going back 28 years. In fact, ECL has an annualized dividend growth rate for the last ten years at a very healthy 12.45%. On a valuation basis it seems that the share price of ECL has run way ahead of its earnings as the PE stands at 33.4, well above the S&P and industry peers. Despite the high current PE, ECL definitely has the characteristics of a great dividend growth stock.
Finally, in the water treatment space we have Pentair plc (PNR). Similar to the previous companies mentioned, PNR produces various water technology solutions including water purification treatment systems as well as manufacturing products designed for the transfer and flow of clean water and wastewater. PNR currently yields 1.30% with a low payout ratio of 25.4% ensuring future dividend increases based on current cash flow. PNR, like ECL has an equally impressive annualized dividend growth rate at 8.88% for the last ten years and has been increasing its dividend for over 37 years! Like ECL it seems that the share price has jumped a little ahead of earnings as the PE of PNR is 25.3 putting it above the S&P and industry peers. Again, despite the high current PE you cannot discount the very long history and dividend friendliness of this stock.
In the water technology space we have Badger Meter Inc. (BMI). BMI, as its name suggests, produces electronic water meters and other flow measurement devices to municipal water utilities. BMI currently yields 1.40% with a low payout ratio of 34.6%. BMI has a dividend growth history going back 12 years with a ten year annualized dividend growth rate of 10.2%. Like the other stocks mentioned, the PE of BMI is relatively high compared to the S&P at 29.2 but lower than its peers.
Next in the water technology space we have Roper Industries Inc. (ROP). Like BMI, Roper Industries Inc. produces flow measurement and metering equipment as well as various water meter, valve and control systems. ROP currently yields a very low 0.50% (I know, nothing to get too excited about) with a very, very low payout ratio of just 12.7%. This is a low, albeit safe dividend. ROP has a decent history of dividend increases, as well, going back 15 years and has an impressive annualized dividend growth rate of 10.89% for the last ten years. Another great dividend growth stock that has a low current yield. From a valuation perspective ROP is currently 26.7 which, like the other stocks mentioned, makes it a bit pricey at current levels.
Finally, I’d like to talk about three more companies in the water resources sector involved in the production of irrigation systems. As you can imagine, creating and building more efficient irrigation systems for agricultural, industrial and residential use not only reduces our overall impact on water supplies but delivers water in a cost effective manner.
Lindsay Corporation (LNN) designs, manufactures and sells irrigation systems primarily used in the agricultural sector. LNN currently yields 1.20% with a payout ratio of 26.5%. While LNN currently has a low relative yield its annualized dividend growth rate has been impressive at 11.17% for the past ten years while growing its dividend annually for the last 11 years. LNN has a valuation that is currently in line with the S&P at 18.9.
Next is Valmont Industries, Inc. (VMI) which produces mechanical irrigation equipment and related services for the agriculture industry. VMI, like many of the other stocks featured, offers a low current yield of 0.90% with a safe payout ratio of 14.4%. The impressive stat for VMI is its annualized dividend growth rate which is 11.96% for the past ten years. Looking at the valuation of VMI we see a PE of 16.1 making this stock seemingly the cheapest of the bunch.
Finally, in the irrigation space we have Toro Co. (TTC). TTC produces various irrigation supplies including including sprinkler heads, valves, controllers and turf maintenance equipment. TTC currently yields 1.20% with a low payout ratio of 26.7%. If you are searching or some serious dividend growth then look no further than TTC’s ten year annualized dividend growth rate of 26.31%. On a valuation basis TTC is right in line with industry peers at 23.8. Perhaps a bit pricey relative to the S&P but you cannot ignore the amazingly high ten year dividend growth rate which is something we all seek.
As you can see many of the stocks mentioned may have high current PE’s but also feature long to very long dividend histories with relatively high ten year annualized dividend growth rates at around or better than 10%. As dividend growth investors we always seek stocks that can continually raise dividends at a healthy clip that far outpaces the inflation rate. While the current yield on most of these stocks are low, the dividend growth rates are all very high. Looking at many of the above companies it seems that the water resources space has a lot more room to grow especially as demand for their services continues to climb. What do you think about investing in this sector or the related water intense agricultural sector?
Disclosure: Long NONE
20 thoughts on “Dividend Stocks To Quench Your Thirst”
Water source and water use is going to become extremely important over the next decade especially if the population continues to expand. It’s good to see there’s options in the DG space other than the water utilities in the US.
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That was the central point of writing this article. The fact that the world population is expanding rapidly and water will increasingly matter to more parts of the world and the fact that as dividend growth investors we do have options beyond the standard water utilities such as WTR, AWR and CWT. As you can see a lot of the stocks have low yields but very high dividend growth rates, some going back more than two decades. Thanks for the comment.
I own ECL, it’s a very well run company. Also, have ROP on my watch list. Glad to see they’re mention here and making a good impact on the world!
ECL is a great stock and is one of the more diversified of the companies mentioned. The water resources space is becoming increasingly important as our world develops and I was surprised that few articles, let alone dividend focused articles, have been written about this sector. Thanks for your comment.
I have been wanting to do some research into the water space. Thanks for the helpful list.
Glad this list is helpful and can be a great starting point for those looking to invest in the water resources space. Thanks for stopping by.
Water usage is definitely going to be critical going forward as the population continues to grow and the resources becoming scarce. The stocks listed are yielding low right now, but could be poised for growth in the next few years.
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The water resources space will make the headlines in the coming decades. No question about that. I wouldn’t focus so much on the low current yield of these companies as much as their very high dividend growth rates. From that perspective the companies mentioned, as you said, “could be poised for growth in the next few years.” Thanks for stopping by.
GE is big into water filtration devices.
Thanks for the GE mention. I wanted to focus on stocks that derive most of their income from the water resources business. As you know, GE is a conglomerate that is diversified among many industries, water being just a small portion. Thanks for sharing.
I have to say that I am disappointed with your list….DIvidend stocks to quench your thirst? Where is TAP, BUD, and DEO? All have 2%+ divvys and will definitely quench your thirst! LOL
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Well those stocks you mention quench a different kind of thirst. This article is strictly water related. Of course, alcoholic thirst belongs in a separate blog post. Thanks for stopping by.
Very informative, DH. Before reading your article I was only familiar with ECL and TTC. I looked at Yahoo finance for a look at the PEG ratio for the 2 companies with PEs below 20. Yahoo has LNN at 2.01 and TTC at 1.45. I like to see a PEG of 1 (Peter Lynch’s target metric), but it is tough to find quality stocks that meet this criteria these days. TTC might be a good, long term buy.
Always love hearing that my articles are informative. Thank you. PEG’s of 1 as you know is difficult to find these days. Still, many of the names listed in the article are of high quality with very good dividend histories. Appreciate the comment!
Thanks for this list. I’ve wanted to add a water-related company to my portfolio and didn’t know about these. I’ve only previously looked at the water utilities that you mentioned. We’ve been in a drought in Texas for years now and I don’t see it going away anytime soon. The world is mostly water but when you look at just the amount of “fresh” water, the story changes a lot.
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The stocks mentioned are different than the traditional water utilities many dividend investors look to invest. Few people know of the many water related stocks that have very robust dividend histories and operate in a segment that will be getting a lot more attention in the years to come. Drought in Texas and the west are the current headlines and you know water related issues will be garnering more of the headlines in the future. Thanks for commenting.
Thanks for sharing…I appreciate these themed posts. You know exactly what your getting before you even read the body of the article.
With the issues surrounding water shortages, I like the water treatment and technology sector. They all just appear to be very expensive at the moment though…maybe if there is a decent dip.
Best Wishes! AFFJ
Glad you are enjoying my themed posts. I find it makes looking for dividend stocks and ideas more fun. Water is definitely a sector I have been looking at for a while. I mostly was thinking utilities until I wrote this piece and found many other water resources related companies that seem like a better alternative because fo future growth possibilities. Thanks for your comment.