Water stocks have been great performers over the last few years, and there’s a good reason why. A good friend of mine who lives on top of a mountain in Vermont doesn’t have consistent access to clean water. No, he’s not the Grinch, living alone in some cabin with his dog. He lives with his family adjacent to a popular ski resort, surrounded by neighbors who are stuck with the same problem. The water quality has improved of late, but they pay through the nose for it – like more than $100 a month. Crazy.
Most of us take water for granted. It’s the most abundant resource on the planet after all, and it’s normally cheap - $2 per 1,000 gallons, for the average American. But all I have to do is utter the words “Flint, Michigan” or “Colorado River water shortage” to remind you that not everyone is so fortunate, even here in the U.S.
Globally, 785 million people lack access to clean water; 2.1 billion people don’t have clean drinking water in their homes. Progress has been made, for sure; between 1990 and 2015, 2.6 billion people in developing countries gained access to clean drinking water. But the world’s surging population combined with the effects of global warming—extreme drought in some areas, extreme flooding in others—means that 4 billion people, more than half the world’s population, experience water scarcity for at least one month each year, according to UNICEF.
With clean water becoming an increasingly scarce resource, water is more valuable than it’s been in decades. And so are the companies that supply it.
That’s why water stocks have been strong performers over the last few years, outperforming the S&P 500 over the last one-, two- and five-year periods. Just look at the returns of these five water stocks and ETFs over the past two years, all of which have more than doubled the 4.9% return in the S&P 500 during that time:
5 Water Stocks and ETFs for Beating the Market
- American States Water Company (AWR): +21.9%
- California Water Service Group (CWT): +11.9%
- First Trust Water ETF (FIW): +12%
- Invesco Water Resources ETF (PHO): +11.6%
- Tetra Tech (TTEK): +16.1%
Not all water stocks and ETFs have outperformed, of course. But of the 20 or so that I looked at, not one of them was actually down in the last two years.
Tetra Tech is a consulting and engineering firm that specializes in “water, environment, sustainable infrastructure, renewable energy, and international development” with a heavy emphasis on safety and sustainability; American States Water Company is a nearly 100-year-old water and electricity company whose primary contracts are with the U.S. government; California Water Service Group is the third-largest publicly traded water utility company in the U.S., with operations in California, Hawaii, New Mexico, Texas and Washington. The other two are ETFs whose holdings include some of the top water stocks from around the world.
The three companies are growing: California Water Service Group was on track for 5.8% revenue growth in 2022 and another 5% improvement this year; Tetra Tech has almost identical top-line growth numbers (5.8% this year; 5.6% next year); and American States Water is projected at 2.7% growth in 2022 and 2.8% growth in 2023.
Like most utility stocks, all three pay a dividend: AWR and CWT offer 1.7% yields and years of consistent growth; TTEK pays a more modest dividend (0.6% yield).
The water crisis is clearly on Wall Street’s radar, and the institutions are investing in the push to solve it.
Until then, you can profit by investing in the companies trying to do the solving.
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*This post has been updated from an original version, published in 2019, and is periodically updated to reflect market conditions.
