Buy: American States Water (NYSE:AWR)

American States Water has evolved considerably since 1929 when the first water systems were acquired by the company. Today AWR is a service provider focused on needs of more than a million people across California and ArizonaIn 1998, American States Water Company became the parent company of a new subsidiary dedicated to the unregulated water industry, American States Utility Services Inc.

AWR provides water to 1 in 36 Californians, in 75 communities, across 10 counties. The company also distributes electricity to approximately 23,250 customers through Bear Valley Electric Services. Through its subsidiary American States Utility Services Inc., the company provides services to municipalities, the U.S. government and private entities, such as billing, meter reading, water marketing and operations, and maintenance of water and wastewater systems at various military installations throughout the United States.

Growing dividends are magic. And Above all, they beat the market. Ned Davis' study shows that over the last 30 years, they have displayed a total annual performance of 9.5%, more than other dividend-paying stocks and much more than those that do not.

American States Water is no exception to this rule. 68% of its performance comes from the reinvestment of dividends over the last 25 years. We can see from the graph below that if we only focus on the price variation, our vision of reality is totally distorted. Incidentally, the stock has the luxury of humiliating the S&P 500, which is not so bad for a stock considered defensive.

The current yield, with 2.9%, is quite correct in the current times. The long term average return is actually only slightly higher, at 3,19%. The average annual dividend growth is significantly improved, at 10,37% (3,33% in our last analysis). The most remarkable aspect of AWR is without a doubt its history of increasing dividends. With 59 consecutive years of dividend increases, it holds the record for longevity, tied with DBD and PG. The distribution ratio is quite correct, at 48.42, which leaves enough room for the company to continue to increase its dividend even in the event of a difficult passage.

Volatility, on the other hand, is increasing, at 21.40% (12.35% in our last analysis). This is explained by the recent correction following a surge in the price that is unusual for this stock. Volatility of this type for a public service company is not commonplace, let's hope it is only temporary. The beta on the other hand, with 0.44, indicates that the stock is not very sensitive to market variations. 

With a virtually zero $risk, AWR tends to be unaffected by fluctuations in the greenback. Thus, a fall or rise in the dollar has little effect on the value of the security in CHF, which is always appreciable.

In the end, AWR gets 4 stars, which is a very good return/risk ratio. The yield is attractive considering the current market level, the dividend is growing steadily, with a great track record to boot. The current dividend distribution does not call into question future earnings and the stock itself is free from currency risk. The current volatility is a bit high, however, especially for this type of stock. It is probably only ephemeral...

Taking these considerations into account I just bought some AWR.