American States Water: A Dividend King With A Strong Moat

The list of the so-called Dividend Kings consists of the companies that have managed to increase their dividends annually for at least 50 years in a row. You can see the full list of all 25 Dividend Kings here.

Naturally many of the companies on the list are huge corporations, as a company must have a long and successful operating history to land on that list.

There are, however, also some smaller companies on that list, many of them being relatively unknown. One of those is American States Water (AWR), which has raised its dividend for 63 years in a row. This article will discuss why American States Water may be overvalued.

Business Overview

American States Water was founded almost ninety years ago, since then the company has expanded geographically across several states in the US.

The company’s operations consist of three main segments: Regulated water (in California), regulated electricity (in California), and services for water and wastewater systems (on 11 military bases in the US). The majority of American States Water’s revenues and earnings are derived from the regulated water segment, which serves 260,000 customers:

Source: American States Water’s presentation

Electricity services make up just eight percent of revenues, the American States Utility Services segment is responsible for about one-fourth of the company’s revenues.

American States Water’s regulated businesses (water and electricity) are not high-growth businesses, but the company has a big moat there. The utility industry is not one where companies are heavily contesting over customers. American States Water’s services segment is growing at a faster pace, but the company is not facing a lot of competitive pressures there, either.

Source: American States Water’s presentation

The services segment, which was established in 1998, has grown to span eight states, currently serving eleven US military bases, and there is room for more growth going forward.

Growth Prospects

When it comes to American States Water’s growth prospects, we have to differentiate between the regulated and the unregulated business. Water and wastewater services on several more US bases have not yet been privatized, so there is a lot of potential for receiving contracts to service more bases in the future. American States Water states that presentation for numerous bases and that several contracts will be awarded during the next five years.