Imagine living without power, natural gas, or water. You probably can't even fathom the full impact this would have on your life, because it would be such a horrible experience. The companies that provide us with these products and the surrounding services are utilities, investments that get far less respect than they deserve. They are built to be reliable. So reliable, in fact, that there are 16 utilities that have increased their dividends every year for 25 years or more! Here's that list, with a look at three companies in particular: One that might interest high-yield investors, one suitable for dividend-growth investors, and one that offers a healthy mix of attractive yield and growth potential.   

The utility trade-off

Because of the scope of the products and services utilities provide, they are granted monopolies. Essentially, it would be prohibitively expensive to operate two utilities in the same area. In exchange for a monopoly business, utilities are subject to strict regulation, including the need to get their customer rates approved by the government. The goal is to set a balance between a fair economic return for the utility and its investors, and fair costs for customers.

A person wearing a reflective vest and holding a hard hat, with power lines in the background.

Image source: Getty Images.

The outcome of this balancing act is generally slow and steady growth. The businesses are robust because demand is always strong, but there's little opportunity for increasing prices quickly. In general, the way a utility gets rate increases approved is by investing in its assets -- to improve performance (storm hardening), modernize its infrastructure (smart meters, upgrading old water pipes), or expand its capacity (building new power plants to handle increased demand). And so long as a utility doesn't overleverage itself or make bad investments in unrelated fields, investors can count on regular dividend payments that grow over time.

Steady as she goes

Here's a list of 16 utilities that have followed that simple game plan, for the most part, and rewarded investors with at least 25 years' worth of annual dividend increases.

16 Dividend Champion Utilities (25-Plus Increases)

Company

Yield

Dividend Streak (in Years)

10-Year Annualized Dividend Increase Rate

American States Water Company (NYSE:AWR)

1.9%

63

7.6%

Aqua America, Inc. (NYSE:WTR)

2.4%

25

7.5%

Atmos Energy Corporation

2.2%

34

3.6%

Black Hills Corporation 

3.2%

47

2.8%

California Water Service Group 

1.9%

51

2.2%

Connecticut Water Service, Inc.

1.7%

48

3.1%

Consolidated Edison, Inc. (NYSE:ED)

3.7%

44

1.8%

MDU Resources Group, Inc.

2.8%

27

3.4%

MGE Energy, Inc

2.2%

42

3%

Middlesex Water Company

2.1%

45

2.2%

National Fuel Gas Company

3.2%

47

3%

Northwest Natural Gas Company

3.1%

62

2.7%

SJW Group

1.8%

51

3.7%

UGI Corporation

2.1%

31

6.4%

Vectren Corporation

2.6%

58

3%

WGL Holdings, Inc,

2.4%

43

4%

Data source: The DRIP Investing Resource Center.  

The high yielder. Consolidated Edison has increased its dividend for 44 consecutive years and currently offers the highest yield out of these at 3.7%. The company provides electricity, natural gas, and steam (for heating) within New York City and its surrounding suburbs. It also has a renewable-power merchant business and owns long-haul transmission assets that help get power from where it is created to where it gets used.

There are two things of note about Con Ed. First, it gets paid for the use of its wires and pipes, not for the power and gas that passes through them (it owns a few power plants, but they are related to its steam business and account for very little of the power it delivers). The utility essentially passes generation and gas costs on to its customers. This provides some protection from the shift toward renewables since production facilities aren't an important part of its business. Its renewable power assets, a relatively small business, are another hedge against renewable-power growth.

The second thing to know about Con Ed is location. New York City is a vibrant and growing market, allowing Con Ed to grow along with it. And by taking a conservative approach to its operations, Con Ed has built an impressive dividend record along the way. The utility's plans for the future, meanwhile, include $11 billion in spending across its business ($9.5 billion on its regulated assets). It projects that this will support 6% annualized rate base growth, as it upgrades pipes and power lines, among other things.   

Growing the dividend. American States Water is the top company here with regard to historical dividend growth, with its annualized 10-year dividend growth rate of 7.6% edging out the next closest utility by a tenth of a percentage point. That said, it also leads the pack with regard to the length of its dividend streak, which is 66 years and counting. The only problem is that the yield is toward the low end of the list above at 1.9%, but that might be just fine for an investor who favors dividend growth over dividend yield.

As far as utilities go, American States Water is pretty tiny (its market cap is just $2 billion). While the larger utilities in this country serve millions of customers, American States provides water to just under 260,000 customers in northern California (roughly 70% of 2017 revenue). It also distributes electricity to 24,000 customers in and around the city of Big Bear, also in California (8% of revenue), and provides water and wastewater services to military bases around the country (23%). 

American States Water is a little different in where its growth is coming from. The current plan targets capital spending that is roughly three times the company's depreciation expense for its regulated assets (thus growing its asset base). That should support slow and steady growth and the company's 5% dividend increase target. However, it's the military water services business that will be the real dividend engine. There are a large number of new contracts (which can last up to 50 years) coming up for bidding over the next three years. The more contracts American States wins, the higher the dividend growth rate should be. If you decide to do a deep dive into this utility, pay close attention to this piece of the business. 

A mixture of yield and growth. Aqua America is the standout for dividend yield and dividend growth, with a yield of 2.4% and an annualized 10-year dividend growth rate of 7.5% (just a sliver below American States Water). The company's annual distribution streak is 25 years long, meaning it only just made the above list.

Aqua America is a more traditional water utility than American States Water in that water and wastewater services form the core engine of growth. It serves around 3 million customers in eight states. Current plans call for spending roughly $1.4 billion between 2018 and 2020 on to upgrade and expand its assets. That should support mid-single-digit rate base growth (the goal is 7% in 2018).   

However, the water utility business is highly fragmented, and Aqua America is a key consolidator in the industry. For example, in the first quarter of 2018, it acquired three new water utilities, leading to a 0.2% increase in its customer base. That's tiny, but it reflects only a single quarter of activity. The key takeaway here is that the more acquisitions Aqua America can ink, the more dividend growth investors can expect.

The tip of the iceberg

This trio of deep dives is just meant to whet your appetite -- there are 13 more companies on the list above to look at. That said, Con Ed's New York City focus, American States Water's military niche, and Aqua America's acquisition-based customer growth are all very compelling stories. Still, if these three names don't interest you, then you should run through the full list presented here. I'm confident you'll find at least one utility there that could end up in your portfolio.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.