Stick to this Blue Gold Essential Utilities Stock
There’s no doubt we’re living in a fascinating time. But while we might be in the midst of some globally transformative changes, don’t let shiny new industries distract you from classics like essential utilities stocks.
We’ve seen some remarkable changes in our lifetime. In the realm of finance alone, we’ve seen markets soar and crash, and we’ve seen younger generations birth new “meme” stocks and decentralized finance.
New industries like electric vehicles have flourished, and vaccines can now be developed in months. Even as we speak, we’re witnessing the evolution of the internet into the “Metaverse.”
This change from our analog world into the Digital Age has meant dislocation for many businesses, but opportunity for others. Then add to that near-zero interest rates around the world, and cheap easy money has been chasing growth now for more than a decade.
But remember, there’s just as much demand for Old Economy businesses as there is for New Economy ones. They don’t get as much press as new industries, but they remain great investments if you know what to buy.
What You Can’t Live Without
You may think that the headline above is a reference to your Google Home, Pinterest, or Instagram account. It’s not. I’m being literal.
Did you know that a human can last up to three weeks without food, but will likely perish in three days without water? Maybe you can’t go that long without your social media, but there’s a very good chance it won’t kill you.
As the world becomes more virtual, we tend to lose sight of the incredible developments before all these digital wonders came into our lives. A few decades ago, potable water delivery to your house was an amazing achievement.
Now we think nothing of it, but dream of a tweet going viral! That certainly speaks to a significant improvement in our quality of life when safe, consistent water takes a back seat to posting selfies of our dinner.
The Work Behind Water, a Vital and Essential Utilities Stock
American Water Works (NYSE:AWK) has been in my Proffe’s Global Growth Portfolio for nearly three years now, and while water may not be something you think about every day, you can be certain that the people at AWK do. Founded in 1886, the current company operates in 46 states and serves more than 15 million customers, commercial and residential.
Source: American Water Works
Remember too that water needs professionals on the front and back end. It’s not just providing clean water, but also managing wastewater, and AWK does it all.
Over the years, AWK has grown considerably as local towns and municipalities have had to cut their budgets. A town has scores of things to think about and hire for, and it may not have access to the kind of professionals that AWK has on staff.
Because of this, AWK has gained a national reputation for taking over local water management with better prices and higher quality service than many towns could provide otherwise. This is part of the strategy that has helped this essential utilities stock earn its keep in my portfolio.
AWK’s Growth Over the Past Three Years
It’s clear AWK does one thing and it does it well. It’s a win-win that has continued to expand AWK’s service area across the US and into Canada. This kind of growth can be seen in AWK’s impressive stock growth.
In the past three years, the stock has seen an average growth of more than 28% per year, and it also has a reliable 1.4% dividend that you can reinvest. While the dividend may not knock your socks off, it’s almost three times better than the top money market rates.
In AWK news, this essential utilities stock is as solid as they come. Few utilities, much less any other publicly traded companies, have a 135 year history of managing the same business and continuing to grow like AWK. It’s not a shiny new hyper growth stock, but it’ll carry your portfolio in good times and bad.
Silver and Gold
This all reminds me of the children’s song that goes “Make new friends, but keep the old. One is silver and the other is gold.”
In investing terms, this is what I mean when I talk about Old Economy stocks and New Economy stocks. They’re both valuable and ultimately inextricable.
For example, many New Economy businesses like chipmakers are dependent on water. We can’t answer the question of when the chip shortage will end, but we know it will need that blue gold to make a stable recovery. Though we do hope the global chip shortage ends soon!
Of course, humans still appreciate water, as do their pets and plants.
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We focus on stocks that provide long-term growth. We might discuss the changing investment landscape, but you won’t see us recommending things like Metaverse stock or lists of Meme stocks.
True wealth building cornerstones aren’t a flash in the pan. Like the essential utilities stock that is water, the stocks we believe in are in industries that will always be vital to our lives.
While every corporation is different, you’ll find the best candidates for low risk, high return investments in these industries. But only if you have the patience – my simple investing strategy sees the stocks in my portfolios stay there for months, and often years, at a time.
I hope you’ll join us!
– Michael Proffe
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