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Dividend Investing Stocks (Archived)

AWR - American States Water Co.

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 May 2015 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.

American States Water Co.

American States Water Co. NYSE:AWR is a small-cap utility company and its stock trades around $5 million per day. AWR was organized in 1929 and has an established history of paying dividends and provides a dividend yield of 3%.

The key fundamentals for AWR are shown below.

Growth fundamentals for AWR

YearRevenueEPS ROEDividendBook ValueEmployees
20042201.10 7%0.4515.00490
20052301.60 10%0.4515.70510
20062601.36 8%0.4616.70510
20073001.65 9%0.4917.60520
20083101.64 7%0.5024.20500
20093601.58 8%0.5119.40580
20103901.78 9%0.5220.30710
20114102.45 11%0.5621.70730
20124602.82 12%0.6723.70720
20134701.60 13%0.7912.70720

The fundamental data above shows that AWR has broadly increased its revenue, earnings, book value and employees over the last decade. AWR is growth stock that pays a dividend. Also AWRs dividend yield is quite good - which is currently about 3%.

Fundamental Analysis for AWR:

The return on equity is reasonable and is currently above 10%. The profit margin (profit to revenue ratio) is reasonable and averages around 10% over the last decade.

The current ratio (current assets to current liabilities) is currently around 1.9 which indicates that AWR has a sufficient amount of working capital.

The debt ratio (long-term debt to tangible assets) averages around 0.6 which means that AWR 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 65% which means that AWRs total debt is 65% of its total assets.

The revenue for the 2014 fiscal year is projected to grow at 6% (based on the five year revenue growth trend). The earnings growth for the 2014 fiscal year is projected to grow at 5% (based on the five year earnings growth trend).

The forward PE ratio is around 13 (calculated from the five year earnings growth trend rather than from forecast earnings). The forward PEG is around 3.8.

The current business valuation is around $17 (with a 2.8% ten year Treasury bond yield).

AWRs book value is around $13 which means that AWRs earnings growth is worth less than its assets.

The bankruptcy risk can be calculated using the Z-score. AWRs Z-score is 1.7 which means AWR is a moderate bankruptcy risk stock.

The sample analysis uses data that is one year old. The hypothetical purchase date for the stock is 21-Apr-2014 and this allows the reader to see how the stock performed over the next year.

Overall the fundamentals are quite good with this large-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 AWR on the 21-Apr-2014 would give a purchase price of around $31.

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 AWR

weekly Chart AWR

As shown in Chart 2. above, AWRs gained around 30% over the next year including dividends. AWRs 2014 annual earnings increased by 2% over the 2013 fiscal year. AWRs 2014 dividends were $0.84 which is a 6% increase over the 2013 fiscal year

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