"Water, water everywhere, nor any drop to drink."

-- Rime of the Ancient Mariner, Samuel Taylor Coleridge

Thanks to the work of water utility American States Water (NYSE:AWR), folks living in California don't have to worry about taking that poem too much to heart. What's more, American States is further proof that I will turn over pretty much any stone in the search for interesting stock ideas or themes.

Quite frankly, American States' business is not especially complex -- it mostly provides water service (and limited power service) to California, as well as limited water service to Arizona. While management is looking to expand into non-municipal markets like servicing military bases, that's still a nascent concept right now.

Now, before you start snickering and leave to go read about the latest gee-whiz techno-fad, consider this. Over the past five years, the S&P 500 has lost about 20% of its value. During that time, American States has climbed 40% AND its holders have collected a nice dividend along the way.

What's a "nice dividend"? Well, the stock currently yields about 3.4% -- second-best among American water utilities of any meaningful size. What's more, this company has a more than 50-year history of raising that dividend.

Now, that isn't to say that the company's financial performance is as sparkling as a mountain stream. While American States is barely followed by Wall Street, the company has missed what few estimates are out there for the past few quarters. What's more, the company has been consistently free cash flow negative for some time, although performance on that metric should improve in 2005.

So what's to like? Well, part of American States' troubles have concerned the regulatory environment in California. American States can't raise its prices without permission, and the relevant regulatory overseers have had a rather pronounced anti-business sentiment.

Luckily for American States and its investors, that attitude appears to be changing. With some new appointments on board, it seems that regulators now realize that utility companies are not public charities, but actual businesses that need to make a profit to stick around.

Accordingly, American States has seen some rate increases go through, and further increases should be a bit easier in the future.

While nobody in his right mind should view this as a stalwart growth stock, the company does have a number of positives going for it. The business is growing, the company maintains a good debt rating, and rate hikes should drop to the bottom line. What's more, the company has a long history of increasing its dividend, the industry is ripe for consolidation, and American States' valuation is among the lowest of its peers.

While investors need to keep a close eye on future rate decisions (as well as the company's overall profitability), water is a basic requirement for life, and a company with a 50-year track record of dividend growth could fill a niche for investors who want to add an income-producer to their portfolio.

Get some juice from these other Foolish utility views:

American States competitor California Water (NYSE:CWT) is a Motley Fool Income Investor recommendation. Want more income-producing stock recommendations? Take a free trial today.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long, nor short the shares).