American Water Works is the largest publicly traded water and wastewater utility in the U.S. It makes most of its money by providing regulated water and wastewater services to retail, commercial, and industrial customers (14 million people across 14 states). The rest of its earnings come from less-predictable market-based activities, including providing water-related services to homeowners and the military (18 military installations).
In late 2025, it agreed to merge with Essential Utilities (WTRG +0.55%) to form an even larger utility company with an enterprise value exceeding $60 billion. Essential Utilities operates the Aqua and Peoples brands, serving 5.5 million people across nine states with water, wastewater, and natural gas services. American Water Works expects to close the merger by the end of the first quarter of 2027.
American Water Works expects the combined company will grow its earnings per share (EPS) at a 7% to 9% compound annual rate over the long term, making it one of the fastest-growing utilities in the country. Driving that outlook is its plan to invest billions of dollars annually to expand its regulated water utility operations through capital investments and acquisitions.
The water utility has the financial flexibility to support its expansion plan thanks to its top-tier financial profile. It has an investment-grade credit rating, allowing it to borrow at lower rates and on better terms.
It also has a very conservative dividend payout ratio (it has targeted an average of between 50% and 60% of its adjusted EPS). Due to its strong financial profile, American Water Works forecasts dividend growth matching its earnings growth rate (7% to 9% annually). That would enable the utility to continue its dividend growth streak. It has raised its dividend every year since going public in 2008. American Water Works' combination of earnings growth and dividend income (it had a nearly 3% yield as of May 2026) positions it to produce attractive total returns.
