Aqua America: Standing the test of time

by Ian Wyatt, editor Top Stock Insights

Utilities offer a great investment for those who believe the market is overheating. Additionally, utility stocks defend investment portfolios from difficult economic periods.

Aqua America (WTR) has proven to be among one of the best utility stocks to own over the past decade. I love this investment because it's simple to understand and has stood up to the test of time.

What was once a company serving a handful of farm town residents in Delaware, Aqua America now provides its water services to 3 million people in 12 states.

And utility stocks are considered defensive investments because they tend to perform well during difficult economic times. Also, earnings are stable since people will need utility services all the time.

The stable earnings make valuing utility stocks easier too, which means they are less prone to big misses in earnings or huge swings in share price.

Over the past 11 years, Aqua America has managed to increase its net income every single year, consecutively. How many other companies can claim 11 years of consecutive income growth?

Also, keep in mind that 11 year range includes two U.S. recessions. But the stable earnings provide another benefit; it lets management declare a reliable dividend each quarter.

Utility stocks are known for their generous dividends. And many, like Aqua America, paid cash out to shareholders during the 2008 recession.

In fact, Aqua America has raised its dividend payment 19 times over the past 20 years - that dividend has doubled from $0.30 in 2000 to $0.66 too.

And with U.S. Treasuries only paying 3%, Aqua America, and other utility stocks, can match that interest yield and offer upside price appreciation from the stock.

The constancy in earnings and generous interest payments from utilities facilitate fine stock performance in all trends, including downtrends in the market.

Traditionally, investors pile into safe havens, such as gold and Treasury bonds as equities approach bear market territory. But utilities may actually benefit the most from the current economic environment after being neglected by investors for the past few years.

While utilities are not considered a growth investment, Aqua America has grown as fast as some "growth" companies. It managed to grow sales by 8.3% in 2010 and its income rose by nearly 19% over the same time.

The results have continued to improve in 2011. After the first nine months of 2011 management was able to record a 5% increase in sales to $539 million. Net income increased to $109 million from $95 million over that same time.

The rise in net income resulted in a 14% increase in EPS to $0.79, which doesn't include the $0.62 per share paid out in dividend to its shareholders.

Next year, analysts expect Aqua America to continue its reliable financial success. Sales are expected to increase 5.7% to $808 million and translate into a $1.08 EPS for 2012.

Currently, 13 analysts follow the stock and not one of them has a sell rating. Safeguard your portfolio with shares of Aqua America at any price below $24.50.

Learn more about this financial newsletter at Ian Wyatt's Top Stock Insights.