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Dividend Investing Stocks (Archived)

WTR - Aqua America, Inc.

Dividend investing is a popular strategy with investors seeking an income stream. Dividend investors can be placed into two broad categories.

  1. The growth approach - buy dividend paying stocks with emphasis on the company's ability to grow and increase its future dividend payments (to maximize the future yield).
  2. The yield approach - buy dividend paying stocks at cheap prices (to maximize the current yield).

Dividend investors using the growth approach tend to look for the same basic growth characteristics as found with growth investing, but the stock must also pay a reasonably reliable dividend.

Dividend investors using the yield approach tend to be more concerned with the stock price and the companies ability and willingness to pay a regular dividend rather than its ability to expand.

Sometimes a company will satisfy the requirements for both approaches.

In the July 2014 issue a fundamental analysis is conducted on a selected sample of stocks. The analysis is based on fundamental data from one year ago. This allows financial students and investors to see how the stock price performed over the next 12 months after the hypothetical purchase.

Aqua America, Inc.

Aqua America, Inc. NYSE:WTR is a mid-cap water services company and its stock trades around $22 million per day. WTR was founded in 1968 and has an established history of paying dividends.

The key fundamentals for WTR are shown below.

Growth fundamentals for WTR

YearRevenueEPS ROEDividendBook ValueEmployees
20033600.51 11%0.284.701260
20044400.63 11%0.305.901440
20054900.70 11%0.336.301480
20065300.70 10%0.367.001540
20076000.72 10%0.397.301580
20086200.72 9%0.427.801630
20096700.76 9%0.458.101630
20107200.90 11%0.488.501630
20117101.05 11%0.519.001610
20127501.40 14%0.549.901610

The fundamental data above shows that WTR has broadly increased its revenue, earnings, book value and employees over the last decade. These are the characteristics of a growth stock. The dividends have consistently increased each year over the last decade. Thus WTR is a growth stock that also pays a reliable dividend - this gives the investor the best of both worlds.

Fundamental Analysis for WTR:

The return on equity is reasonable and ranges from 9% to 14%. The profit margin (profit to income ratio) is good and ranges from 15% to 25% over the last decade.

The current ratio (current assets to current liabilities) ranges from 0.4 to 0.9 which indicates that WTR has insufficient working capital.

The debt ratio (long-term debt to tangible assets) averages around 0.7 which means that WTR carries a moderate amount of long-term debt. Intangible assets and goodwill are not included in the ratio calculation. The tangible assets are used for the ratio calculation because these are hard physical assets that can be sold off in the event of bankruptcy liquidation whereas intangibles and goodwill cannot be sold.

The total ratio (total liabilities to total assets) averages around 70% which means that WTRs total debt is 70% of its total assets.

The earnings growth for the 2013 fiscal year is projected to grow at 12% (based on the five year earnings growth trend). The revenue is projected to grow at 4% (based on the five year revenue growth trend).

The forward PE ratio is around 16 (calculated from the five year earnings growth trend rather than from forecast earnings). The forward PEG is around 1.3.

The current business valuation would drop to around $18 if WTRs earnings growth stops (with a 2.5% ten year Treasury bond yield).

WTRs book value is around $15 and if WTR does run into financial problems in the future this gives an idea of how far the stock price could drop.

The bankruptcy risk can be calculated using the Z-score. WTRs Z-score is 5.0 which means WTR is a very low bankruptcy risk stock.

The sample analysis uses data that is one year old. The hypothetical purchase date for the stock is 21-Jun-2013 and this allows the reader to see how the stock performed over the next year.

WTR had its 2013/03 quarterly results released prior to 21-Jun-2013 and this information is available for the analysis. The 2013 Q1 earnings showed a decline of 5% over the same quarter from a year ago (2012 Q1). The 2013-Q1 dividend is $0.39 for the quarter which is a 3% increase over the same quarter from a year ago (2012 Q1).

Overall the fundamentals are quite good with this mid-cap stock which has a reliable history of paying a regular dividend. Additional information such as consensus forecast earnings, broker recommendations and insider transactions are not considered for this sample analysis. A hypothetical position taken in WTR on the 21-Jun-2013 would give a purchase price of around $24.

The stock price performance is shown below in Chart 2. along with the annual earnings year to year growth. The stock chart is adjusted for splits and dividends.

Chart 2. Stock chart with earnings for WTR

weekly Chart WTR

As shown in Chart 2. above, WTRs gained around 6% over the next year including dividends. WTRs 2013 annual earnings declined by 11% over the 2012 fiscal year. WTRs 2013 dividends were $0.596 which is a 10% increase over the 2012 fiscal year.

Stock Analysis for Finance Students and Investors