Thirsting for some stability in a volatile market? Look no further than water utilities. We're in the midst of a major recession, domestically and perhaps globally, and no sector's been left unscathed. As a result, it's important to stick to businesses that offer stability and long-term steady growth.

Water is a prime example of an industry that offers that stability, driven by the sheer fact of its necessity. People can cut back on many things, but they're not likely to skimp on anything as vital to life as water.

Hydrating for the long haul
More than a savior investment for the violent investing climate, water has merits for long-term investors. Much of the water industry is not privatized yet, but that is slowly beginning to change. Getting ahead of the curve is a key component of investing success. Long-term water rates are on the rise, while improved technology is creating efficiencies by enabling water providers to better understand consumers' use, and streamline the business by cutting the costs of water treatment and delivery.

To scoop up promising water utilities, I used our Motley Fool CAPS screening tool to search for companies with:

  • CAPS ratings of four and five stars, the highest and second-highest ratings from our CAPS community.
  • Within the results, I scanned for water utilities.

Here's what surfaced today when I ran the screen:

Company

Market Cap (in millions)

Dividend Yield

American Water Works (NYSE:AWK)

$3,360

3.8%

Aqua America (NYSE:WTR)

$2,840

2.6%

Consolidated Water (NASDAQ:CWCO)

$174

2.2%

Middlesex Water (NASDAQ:MSEX)

$231

4.3%

Southwest Water (NASDAQ:SWWC)

$123

2.2%

Veolia Environment (NYSE:VE)

$10,650

13.8%

Aside from investing directly in water utilities, investors could also indirectly play the water industry by purchasing companies which make equipment for water utilities. After all, much of the water infrastructure in the U.S. is antiquated and needs updating. Companies that provide water-treatment products and services might provide another promising avenue.

Alternatively, exchange-traded funds (ETFs) have emerged as investment vehicles to wade through the current crisis. Investing in a water ETF such as Claymore S&P Global Water (NYSE:CGW) gives you instant, diversified exposure to a basket of water companies.

Remember, using the screener should only be the first step in your due diligence. Investors must remain mindful of stocks' valuations, fundamentals, and growth prospects, both in the current economic environment and the hopefully less gloomy future. In the water industry, focusing on companies in friendly regulatory environments, where rates for the consumer are higher, should turn up better investments. Also, the water industry is capital-intensive; cost outlays for new infrastructure could easily cut into a company's bottom line. Search for businesses that spend wisely to maximize their return on investment.

Dive into water investing at Motley Fool CAPS today! Let the collective wisdom of our 125,000 member-strong investment community quench your thirst for better investing ideas.

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Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. Veolia Environnement is a Motley Fool Income Investor pick. The Motley Fool has a disclosure policy.