Even though water companies like Aqua America
Honestly, I don't really see what all the fuss was about, since the company is a long-term investment. It might not be exciting to watch a sink fill up one drip at a time, but if you've got the patience to let it go, those drips eventually add up.
Revenue was up about 6% in the fourth quarter, with adjusted earnings rising a little less than 6%. The company did continue to see some higher fuel costs in the wake of the hurricanes, as well as higher employee expenses. That led to a modest year-over-year worsening in the fourth-quarter efficiency ratio, which compares operational and maintenance expenses to revenue.
Aqua America completed 30 deals in the year, boosted its dividend, and experienced roughly 3% dilution. The company also boosted its capital spending by about 21%, which I believe exceeded operating cash flow for the quarter. (The company didn't offer an operating cash flow number.)
All that said, I believe Aqua America's management still needs to be given time to execute what should be a sound strategy. The company's plan involves buying attractively priced water utility assets, fixing them up, then reaping a steady stream of income from those assets. In the short run, that's bad for cash flow and the balance sheet, since it takes debt (and/or stock) to buy assets and cash to upgrade them. Over the longer haul, though, that strategy should produce good cash flow at relatively low risk.
When it comes to widespread water utilities, Aqua is almost the only game in town for many investors. Others like SJW
I realize valuations here don't necessary look cheap at first blush, but I do believe that patient investors can still make some money at these levels. It'll take time, but I still think water is a great place to be for the long haul.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).