Why should shares of a company that provides an essential service like water that has nothing to do with geopolitical tensions or global supply chain snarls suddenly fall?
For York Water (YORW +0.16%), the answer lies in its latest announcement, which hasn't gone down well with investors. The water stock was trading 5% lower as of 1 p.m. ET Thursday after dropping 8.4% in early trading.
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What's happening with York Water stock?
In a regulatory filing dated April 16, York Water announced plans to issue 1.5 million shares, valued at $43 million.
The company priced its new shares at $28.50 apiece, a considerable discount to the previous day's closing price of $30.84 a share. The new stock issue will also increase York Water's total number of shares outstanding, meaning each existing share will now receive a smaller share of its earnings and dividends.
Investors reacted swiftly to the share dilution and low price, sending York shares to an intraday low of $28.26 per share, as of this writing. That price point also marks a new 52-week low for York Water stock, which has fallen nearly 18% over one past year.
Is York Water a good stock to buy now?
Utility stocks are sensitive to share issues and interest rates, which pretty much explains why York Water stock has significantly underperformed in the past one year. However, I believe the stock is now offering a rare opportunity to buy shares of an essential services company at a significant discount. This chart shows the disconnect between the company's operational performance in the last five years and its stock performance.
A share dilution isn't always bad, nor does it necessarily change a company's fundamentals. York Water plans to use the proceeds from the share sale for a variety of purposes, including investing in infrastructure, acquisitions, and reducing debt. Regulated utilities require large amounts of money to invest in critical infrastructure, and it's not unusual for them to raise funds through debt or equity.
York Water has been serving water and wastewater customers across 58 municipalities in Southcentral Pennsylvania since 1816. It has paid a dividend every year for 210 consecutive years. That's the longest dividend streak among all the publicly listed companies in the U.S. York Water has also raised its dividends regularly, including an annualized 4% growth in the last eight years.
