SJW Corp: Is This Small Cap Dividend King Attractive Here?

Companies that have at least 50 years of dividend growth are considered Dividend Kings. You can read more about this select group of companies here. Dividend growth investors won’t be surprised to find large cap names like Johnson & Johnson (JNJ) and 3M (MMM) among the Dividend Kings. These large cap names are some of the most widely owned and followed stocks among income investors. You can see the full list of all 25 Dividend Kings here.

You might be surprised to find that there are some small cap names that have also raised their dividend for at least the past 50+ years. One such company is SJW Group (SJW), a water utility.

This article will examine SJW’s business, growth prospects and valuation in order to determine if shares are worth purchasing now.

Business Overview

SJW was founded in 1866 and was initially known as the San Jose Water Company. With a market cap a little over $1 billion, SJW is one of the smallest Dividend Kings. SJW is a water utility company that produces, purchases, stores, purifies and distributes water to consumers and businesses. SJW currently consists of three subsidiaries:

San Jose Water Company, a regulated utility, has almost 230,000 connections and provides water to nearly one million people in the Silicon Valley area.

Source: Investor Presentation

The company has more than 100 wells and 2,400 miles of water mains in a 138 square mile portion of Silicon Valley. San Jose Water serves a well-educated and affluent customer base. In order to improve operations in the area, the company spent $545 million on capex from 2011-2016. San Jose Water spent more than $141 million on capex during 2017 alone.T he cost of these improvements are then passed onto customers.

SJWTX is a regulated water utility company that supplies water to more than 40,000 people in the area between San Antonio and Austin, Texas.

Source: Investor Presentation

This area saw population growth of 3% from 2006-2016. Population growth has accelerated as businesses provide jobs that have attracted new residents. SJWTX has more than 40 wells, 14,000 connections and almost 600 miles of water mains in the region. SJWTX has seen its customer base soar 90% since 2006 and the company continues to add 700-800 new connections each year.

San Jose Water Company and SJWTX, INC account for almost all revenues for SJW, but there is a real estate portion of the company as well. SJW Land owns and develops properties for both residential and warehouse customers in California and Tennessee. SJW uses the rental income for these properties to reinvest in its water utility business.