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Reasons to Add California Water (CWT) to Your Portfolio Now

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·4 min read
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California Water Service Group CWT, through its subsidiaries, provides water utility and other related services to its customers in the United States. CWT continues to expand operations via organic and inorganic initiatives. Also, its dividend hikes and a favorable debt position act as tailwinds.

This presently Zacks Rank #2 (Buy) stock is a promising bet at the moment. California Water Service’s strong capital investment plans to strengthen water and wastewater facilities are anticipated to drive its performance over the long run. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Growth Projections & Surprise History

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $1.98 and $1.91, respectively, which has moved 7.6% and 3.2% up each in the past 60 days.

California Water Service’s trailing four-quarter earnings surprise is 10.8%, on average.

Steady Dividend Payment

The consistent performance of CWT helps it continue with its shareholder-friendly moves. California Water Service has been increasing the dividend every year since the inception of the payment. In January 2021, it increased the annual dividend by 8.2% to 92 cents per share from 85 cents, marking the 54th consecutive annual dividend hike.

On a long-term basis, California Water Service aims to achieve a dividend payout ratio of 60%. CWT’s dividend yield is currently pegged at 1.41%, better than the Zacks S&P 500 composite’s average of 1.37%.

Regular Investments

After investing $298.7 million in 2020, CWT spent $207.7 million in the first nine months of 2021 and reaffirmed its 2021 capex estimates within the $270-$300 million range. Also, the midpoint of its capital expenditure planned for 2022, 2023 and 2024 is $355 million, $360 million and $365 million, respectively.

The regular investments are enabling California Water Service to strengthen its existing infrastructure and serve its expanding customers more efficiently. The customer base increased 4.3% year over year in 2020 and continues to expand in 2021 as well.

Strong Financial Position

California Water Service’s total debt to total capital is 51.39%, better than the Utilities sector’s 54.76%. It has ample liquidity to meet its near-term obligations. As of Sep 30, it had $140.4 million of cash and additional current capacity of $420 million on the lines of credit, subject to meeting borrowing conditions.

Moreover, California Water Service’s times interest earned ratio has improved. The metric came in at 3.57 at the end of third-quarter 2021, up from 3.16 at the end of fourth-quarter 2020. This strong ratio indicates that CWT has enough financial strength to meet its near-term obligations.

Return on Equity (ROE)

ROE is a measure of California Water Service’s financial performance and shows how it is utilizing its funds. CWT’s ROE is currently pegged at 11.4%, better than the industry average of 10.7%, which indicates that CWT is utilizing funds more efficiently than its peers.

Price Performance

Over the past year, the stock has returned 31.2%, outperforming the industry's 9.2% growth.

Zacks Investment Research
Zacks Investment Research

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Other Stocks to Consider

Other top-ranked stocks in the same sector include CenterPoint Energy CNP, OtterTail Corporation OTTR and Alliant Energy LNT, all carrying the same Zacks Rank as CWT.

CNP, OTTR and LNT delivered an earnings surprise of 13.8%, 12.5% and 6.3%, respectively, in the last reported quarter. The Zacks Consensus Estimate for 2021 earnings per share of CenterPoint Energy, Otter Tail and Alliant Energy has moved 0.7%, 0.8%, and 1.9% north, respectively, in the past 60 days.

The long-term (three-five years) earnings growth rate for CNP, OTTR and LNT is pegged at 4.6%, 4.7% and 6.1% each. Over the past year, CNP, OTTR and LNT have returned 16.5%, 60.5% and 6.7%, respectively, outperforming the sector’s 2% growth.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

CenterPoint Energy, Inc. (CNP) : Free Stock Analysis Report

Alliant Energy Corporation (LNT) : Free Stock Analysis Report

California Water Service Group (CWT) : Free Stock Analysis Report

Otter Tail Corporation (OTTR) : Free Stock Analysis Report

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