Updated on April 19th, 2023 by Bob Ciura
Water is one of the basic necessities of human life. Life as we know it cannot exist without water. For this simple reason, water may be the most valuable commodity on Earth.
It is only natural for investors to consider purchasing water stocks. There are many different companies that can give investors exposure to the water business, such as water utilities. Some other companies are engaged in water purification.
In all, we have compiled a list of over 50 stocks that are in the business of water. The list was derived from five of the top water industry exchange-traded funds:
- Invesco Water Resources ETF (PHO)
- Invesco S&P Global Water ETF (CGW)
- Invesco Global Water ETF (PIO)
- First Trust ISE Water Index Fund (FIW)
- Ecofin Global Water ESG Fund (EBLU)
You can download a spreadsheet with all 56 water stocks (along with metrics that matter like price-to-earnings ratios and dividend yields) by clicking on the link below:
In addition to the Excel spreadsheet above, this article covers our top 7 water stocks today, that we cover in the Sure Analysis Research Database.
This article will discuss the top 7 water stocks according to their expected returns over the next five years, ranked in order of lowest to highest.
Table of Contents
- Water Stock #7: Idex Corporation (IEX)
- Water Stock #6: Consolidated Water Co. (CWCO)
- Water Stock #5: Stantec Inc. (STN)
- Water Stock #4: Algonquin Power & Utilities (AQN)
- Water Stock #3: Pentair plc (PNR)
- Water Stock #2: Gorman-Rupp Co. (GRC)
- Water Stock #1: Lindsay Corporation (LNN)
Water Stock #7: Idex Corporation (IEX)
- 5-year expected annual returns: 8.8%
The IDEX Corporation (IEX) is a company that sells industrial products worldwide. The business operates through three segments: Fluid & Metering Technology (FMT), Health & Science Technologies (HST), and Fire & Safety/Diversified Products (FDSP).
These segments made up 35.5%, 43.5%, and 21.0% of sales, respectively, for 2022. Inside each of the segments, IDEX owns a series of businesses in niche markets that own highly engineered and proprietary assets.
Source: Investor Presentation
These businesses are generally in fragmented niches in growing markets, and most of their businesses are first or second in their niche markets. This gives the business the advantage of being able to drive high returns on operating capital because each of its individual businesses has a moat. IDEX Corporation was incorporated in 1987 and has 8,500 employees.
On January 31st, 2023, IDEX reported Q4 2022 results for the period ending December 31st, 2022. The company earned $2.01 in adjusted earnings-per-share in the quarter increasing 29.7% from the year-ago quarter’s $1.55. For the quarter, IDEX’s net sales were $810.7 million, reflecting year-over-year growth of 13.4%. Organic sales in the quarter increased 12% year-over-year, higher than 9% growth expected by IEX. Full year 2022 net income increased $137.5 million to $586.9 million, which resulted in adjusted earnings per share of $8.12.
IDEX expects adjusted earnings per share of $1.98 to $2.03 for Q1 2023 and a growth of 3-5% in organic sales compared to the same period in the previous year.
Click here to download our most recent Sure Analysis report on IDEX (preview of page 1 of 3 shown below):
Water Stock #6: Consolidated Water Co. (CWCO)
- 5-year expected annual returns: 8.8%
Consolidated Water was founded in 1973 as a private water utility in Grand Cayman. The company uses a desalination process that helps provide water where naturally potable water is scarce or does not exist. Consolidated Water serves a wide variety of international customers.
Source: Investor Presentation
On March 30th, Consolidated Water Co. announced its financial results for the year ending December 31, 2022. Fourth Quarter 2022 total revenue rose by 71% to $28.4 million. Retail revenue grew by 25% to $6.8 million. Bulk revenue increased by 23% to $8.5 million. Services revenue surged by 206% to $10.3 million. A quarterly cash dividend of $0.085 per share was paid ($0.34 on an annualized basis).
As of December 31, 2022, cash and cash equivalents stood at $50.7 million, slightly down from $51.1 million on September 30, 2022. Working capital was $69.9 million, debt at $0.3 million, and stockholders’ equity totaled $159.7 million.
Full Year 2022 total revenue increased by 41% to a record $94.1 million. Retail revenue grew by 17% to $26.0 million. Bulk revenue increased by 23% to $33.0 million. Services revenue rose by 108% to $28.8 million. Net income from continuing operations attributable to company stockholders reached $8 million.
Click here to download our most recent Sure Analysis report on CWCO (preview of page 1 of 3 shown below):
Water Stock #5: Stantec Inc. (STN)
- 5-year expected annual returns: 9.0%
Stantec Inc. provides professional consulting services in the field of infrastructure and facilities internationally. This includes services in engineering, architecture, interior design, environmental sciences, project management, and project economics.
The company also undertakes water provision, transportation, and public works such as transportation planning and traffic engineering.
Source: Investor Presentation
Finally, it serves the urban regeneration, infrastructure, education, and waste industries. Stantec generates around $3.6 billion in annual revenues and is based in Edmonton, Canada.
On February 22nd, 2023, Stantec released its Q4-2022 and full-year results for the period ending December 31st, 2022. Quarterly net revenues came in at $834.9 million, 23.4% higher on a constant basis year-over-year, reflecting 10.6% organic and 9.8% acquisition net revenue growth. Adjusted net income increased by 42.8% to $20.0 million. While the project margin fell from 55.3% to 54.9%, administrative and marketing expenses as a percentage of net sales declined from 42.3% to 39.9% – hence the increase.
On a per-share basis, adjusted net income was $0.82, implying a year-over-year growth of 43.9%, as it was further boosted by a lower share count. The company’s contract backlog increased to $4.3 billion, 14.9% higher year-over-year, including double-digit growth in Buildings and Energy & Resources and Environmental Services backlog. It represents about 12 months’ of work.
For the full year, management expects net revenue growth between 7% and 11% and adjusted EPS growth between 9% and 13% in comparison to FY 2022.
Click here to download our most recent Sure Analysis report on STN (preview of page 1 of 3 shown below):
Water Stock #4: Algonquin Power & Utilities Corp. (AQN)
- 5-year expected annual returns: 9.0%
Algonquin Power & Utilities Corp. is a renewable power and utility company that was founded in 1988. The company has increased its dividend every year since 2011.
It has two business segments: regulated utilities (natural gas, electric, and water) and non-regulated renewable energy (wind, solar, hydro, and thermal). Combined, its entire portfolio has 4.3 GW of generating capacity that it aims to achieve 75% renewable energy generation by 2023.
Source: Investor Presentation
Algonquin serves more than 1 million connections primarily in the U.S. and Canada. It also has renewable and clean energy facilities that are largely (about 82%) under long-term contracts of ~12 years with inflation escalations.
Algonquin reported its Q4 and full-year 2022 results on 3/17/23. For the quarter, revenue rose 26% to $748.0 million, adjusted net earnings rose 10% to $151 million, and adjusted earnings-per-share (“EPS”) rose 5% to $0.22. And its adjusted EBITDA, a cash flow proxy, increased by 20% to $358.3 million, against Q4 2021.
For the full-year 2022, revenue rose 22% to $2,765.2 million, adjusted net earnings climbed 6% to $474.9 million, but adjusted EPS fell 3% to $0.69. However, its adjusted EBITDA rose 17% to $1,256.8 million year over year. The utility cut its quarterly dividend by 40% in March 2023.
In December 2022, the regulator, FERC, denied Algonquin from acquiring Kentucky Power. Algonquin decided to continue to pursue the ~$2.6 billion Kentucky acquisition by submitting a new application to FERC in February 2023. Algonquin initiated its 2023 EPS guidance at $0.55-$0.61.
Click here to download our most recent Sure Analysis report on AQN (preview of page 1 of 3 shown below):
Water Stock #3: Pentair plc (PNR)
- 5-year expected annual returns: 9.4%
Pentair is a pure-play water solutions company that operates in 3 segments: Aquatic Systems, Filtration Solutions, and Flow Technologies. Pentair was founded in 1966. Pentair has increased its dividend for more than four decades in a row, when adjusted for spin-offs, which makes Pentair a member of the Dividend Aristocrats.
Pentair reported its fourth quarter earnings results on January 31. The company was able to generate revenues of $1.0 billion during the quarter, which was 1% more than the company’s revenues during the previous year’s quarter, a result that beat estimates slightly.
Core sales, which excludes the impact of currency rate movements, acquisitions, and dispossessions, were down 3% year over year, which was weaker than the core revenue growth rate during the previous quarter, during which Pentair reported a core sales increase.
Source: Investor Presentation
Pentair recorded earnings-per-share of $0.82 for the fourth quarter, which was down by 7% year over year. Pentair’s earnings-per-share beat the analyst consensus by $0.03. Pentair announced its guidance for the current year during the earnings report.
For fiscal 2023, Pentair is forecasting earnings-per-share of around $3.60, which indicates a flat-to-down year versus 2022, during which Pentair had earned $3.68 on a per-share basis. 2023 will also be a flat-to-down year when it comes to revenues, as the midpoint of the revenue guidance range implies a sales decline of 1%.
Click here to download our most recent Sure Analysis report on Pentair (preview of page 1 of 3 shown below):
Water Stock #2: Gorman-Rupp Co. (GRC)
- 5-year expected annual returns: 10.7%
Gorman-Rupp is a manufacturer of critical systems that many industrial clients rely upon for their own success. It generates about one-third of its total revenue from outside of the U.S. The company also has one of the most impressive dividend increase streaks among the water stocks, which currently stands at 50 years. That makes Gorman-Rupp a member of the prestigious Dividend Kings.
Source: Investor Presentation
Gorman-Rupp reported fourth quarter earnings on February 3rd, 2023, and results were mixed. Adjusted earnings-per share missed expectations badly, coming in at 11 cents against an expected 18 cents. Revenue, on the other hand, soared 55% year-over-year to $146 million.
This was slightly better than expected, and was helped along by the recent Fill-Rite acquisition. Excluding Fill-Rite, sales in water markets were up 23% year-over-year, as all of its sub-segments posted gains. In the non-water markets, sales were up 10%, as the industrial sub-segment posted very strong growth, which offset losses elsewhere.
Gross profit was $36.6 million in the fourth quarter, resulting in gross margin of 25.1% of revenue. These were much higher than the $22.3 million and 23.7%, respectively, from the year-ago period. The gains in gross margin were primarily from additional sales leverage, which Fill-Rite helped. Operating income was $12.5 million, or 8.6%, compared to $8.2 million and 8.7%, respectively, a year ago.
Click here to download our most recent Sure Analysis report on Gorman-Rupp (preview of page 1 of 3 shown below):
Water Stock #1: Lindsay Corporation (LNN)
- 5-year expected annual returns: 11.1%
Lindsay Corporation provides water management and road infrastructure services in the United States and internationally. The business’s irrigation segment provides irrigation solutions for farmers and contributed 86% of sales in fiscal year 2022, and the infrastructure segment helps with road and bridge repairs and contributed the other 14%. The conflict in Ukraine has caused a disruption in agricultural activity in that region, leading farmers to plant more intensively in North America.
On April 4th, 2023, Lindsay reported Q2 2023 results for the period ending February 28th, 2023.
Source: Investor Presentation
The business saw diluted earnings-per-share of $1.63, beating analyst estimates and rising from $1.32 for the same period last year. Revenues, however, declined 17% year-over-year to $166 million. The revenue decline was due to a sharp drop in irrigation demand, though the company made up for this via rising profit margins and cost-cutting.
Both irrigation and infrastructure benefit from government support payments. The recent Infrastructure Investments and Jobs Act (IIJA) marks the largest federal investment into infrastructure projects in more than a decade and should boost Lindsay’s infrastructure business. Indeed, Lindsay reported a sharp jump in earnings in 2022 as the company saw growth in both of its business segments.
Click here to download our most recent Sure Analysis report on Lindsay (preview of page 1 of 3 shown below):
Final Thoughts
Water could be one of the biggest investing themes over the next several decades. An increasing global population is only going to cause demand for water to rise in the future.
And, given the fact that water is a necessity of human life, demand for water should hold up extremely well, even during the worst recessions.
Therefore, young investors with a longer time horizon such as Millennials should consider water stocks.
These factors make water stocks appealing for risk-averse investors looking for stability from their stock investments.
Not all the water stocks on this list receive buy recommendations at this time, as some appear to be overvalued today. But all the water stocks on this list pay dividends and are likely to increase their dividends for many years in the future.
Additional Resources
At Sure Dividend, we often advocate for investing in companies with a high probability of increasing their dividends each and every year.
If that strategy appeals to you, it may be useful to browse through the following databases of dividend growth stocks:
- The Dividend Aristocrats List: S&P 500 stocks with 25+ years of dividend increases.
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of 48 stocks with 50+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500. - The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: