If I had to state two of the biggest challenges the world faces in the coming decades, it’s the shortage of food and water. With big challenges comes some of the biggest opportunities for investing and creating millions. It’s not difficult to guess that the agriculture theme and water stocks will be massive wealth creators in the next five to ten years.
Elaborating on the challenges, a 2023 report indicates that Americans are increasingly forced to rely on bottled water at an estimated cost of $1,350 annually. Further, water insecurity has a negative impact of $8.58 billion annually on the U.S. economy.
These challenges are a result of chronic underinvestment in the water infrastructure. However, as water insecurity grows, it’s likely that investments will accelerate. This translates into big opportunities for some water utility companies.
This column discusses three water stocks that are worth holding until 2030 and have millionaire-maker potential.
Essential Utilities (WTRG)
Essential Utilities (NYSE:WTRG) stock has been sideways, amidst volatility, in the last few quarters. At a forward P/E of 18.8, WTRG stock looks attractive. Further, the utilities stock offers a healthy dividend yield of 3.29%.
As an overview, Essential Utilities is an operator of regulated utilities that provide water, wastewater, and natural gas services. The company has one of the largest water infrastructure footprints in the U.S. with 14,450 miles of water main, 200 wastewater treatment plants, and 1,000 water storage tanks.
Essential Utilities is working on further strengthening its infrastructure with targeted investment of $7.2 billion between 2024 and 2028. At the same time, the utilities company is pursuing water and wastewater acquisition opportunities. This is likely to translate into steady growth.
From the perspective of value creation, Essential Utilities has increased dividends in 32 of the last 33 years. With a positive regulatory environment, growth is likely to be supported and will ensure that dividend upside sustains.
American Water Works Company (AWK)
American Water Works (NYSE:AWK) is another stock that has remained sideways in the last few quarters. Valuations look attractive coupled with a healthy dividend yield of 2.37%.
As of December 2023, American Water reported 53,700 miles of pipe, 620 water treatment plants, and 175 wastewater treatment plants. For the same period, the company had a regulated customer count of 3.5 million.
The utility company has ambitious plans to invest $16 to $17 billion between 2024 and 2028. These investments will be targeted towards regulated system investments coupled with regulated acquisitions.
It’s also worth noting that American Water is serving 18 military instillations. In this segment, the company sees 70 additional investment opportunities. Given the investment plan and avenues for revenue upside, the company is also targeting 7% to 9% annual growth in earnings per share for the long-term. This will be associated with cash flow upside and potential dividend growth.
Primo Water Corporation (PRMW)
Primo Water (NYSE:PRMW) has witnessed a healthy rally of 74% in the last 12 months. However, at a forward P/E of 23.6, PRMW stock looks attractively valued. I would bet on a sustained uptrend considering industry tailwinds.
As an overview, Primo Water is a provider of bottled water, water filtration services, water dispensers, and purified bottled water in the U.S. and Canada. In a recent development, Primo Water and BlueTriton have entered into a merger agreement. This merger is likely to create a leading pure-play healthy-hydration company. The combined entity is likely to have revenue and adjusted EBITDA of $6.5 billion and $1.5 billion respectively for the last twelve-months (LTM) ended March. This is inclusive of $200 million in merger synergies.
I must add here that the combined entity has an LTM free cash flow of $565 million. Therefore, once the merger is completed, there will be ample flexibility for aggressive investments. At the same time, the cash flow visibility provides headroom for the planned deleveraging.
Overall, I am bullish on the merger creating long term value and I believe that the best part of upside is still to come for PRMW stock.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
