Shares of American States Water (AWR -0.88%) tumbled 10.8% in January, according to data provided by S&P Global Market Intelligence. There was no news specific to the regulated water utility to cause its decline, but it was coming off a stellar 2021 during which it had returned over 30% for investors, outperforming even the S&P 500.
Utilities aren't typically known for being growth stocks; instead, they're attractive because they provide their investors with a steady stream of income. American States' dividend currently yields 1.6%, putting it pretty much in the middle of the pack of water utilities, but its advantage is its longevity and consistency.
American States, which provides Southern California with clean water and electricity, has paid dividends for over 81 consecutive years and has increased the payout each year for 67 years, putting it in that rare group of stocks known as Dividend Kings, or stocks that have raised their dividends annually for 50 years or more.
While supplying water to homes and businesses is its primary purpose, representing two-thirds of its revenue, it's not American States' only business. It also has 50-year contracts with the U.S. government to provide water to 11 military bases, which account for another 25% of total revenue. The rest comes from generating electricity.
It means American States Water is the steady-eddie investment that income-seeking investors want. It aims to grow dividends by a more than 6% compound annual rate over the coming years. And in an economy that could slide into a recession as the Federal Reserve prepares to raise interest rates this year to combat runaway spending, the water utility represents an oasis of stability amid the possible chaos.
The sell-off in American States shares to kick off the new year likely represents a bit of profit taking by investors unaccustomed to what's supposed to be a lethargic-growth entity acting like a tech stock.
Yet the utility stock has been authorized to raise rates this year as well as in 2023 and 2024, based on inflation. Considering the official inflation rate is at levels not seen in decades, American Water may see some hefty increases coming its way.