Despite the unusual challenges it faces, California Water (NYSE:CWT) put together a pretty nice quarter, largely thanks to increased sales to the customers it already has. But will that existing base be enough to keep the good news flowing?

The company is surely watching another water utility, top dog Aqua America (NYSE:WTR), which has been on a bit of an acquisition tear. It gobbled up 28 smaller rivals last year, and it's expected to feast on 20 more before the close of this calendar year. It might even surpass that expectation.

California Water, in contrast, has been cool on the acquisition front, with none occurring in the past quarter. It did, however, expand its credit line this past quarter with Bank of America to $75 million, with one of the reasons being to prepare for "any potential M&A opportunities that may come [its] way moving into the second half of the year."

Year over year, California Water's revenues rose 18% to $95.8 million. The bottom line climbed as well -- net income came in at $0.37 a share, versus $0.31 a share for the second quarter of last year.

As for those unusual risks, the first is that the company's profits are linked to the amount of seasonal rainfall. Another is that California Water must tackle what at times seems like a Kafkaesque state water regime, in which it can take up to seven years to recover money for services already rendered. There is some promise on this front, though: Starting in 2008, the company should benefit from a greatly simplified process of filing for rate increases.

The whole decision-making process here, however, is rendered considerably easier by virtue of California Water's great dividend. The company has a long history of limiting investors' downside with payouts. Currently, the yield stands at 3%, reflecting an 85% payout ratio.

The high payout, as with all utilities, will certainly keep the brakes on growth, but the company's consistency and above-market yield should allow conservative investors to rest easy with this one.

California Water is a Motley Fool Income Investor recommendation. Try out the market-beating dividend service free for 30 days.

Fool contributor R.C. Lim does not own shares of any company mentioned in this article. R.C. manages Avocado Capital, L.P., a value fund. The Motley Fool has a disclosure policy.