Water Stocks Worth Your Attention: 3 Rising Opportunities in the Utilities Sector

Water is often taken for granted, yet it represents one of the most critical resources driving economic growth and societal stability. For investors navigating uncertain market conditions, water stocks offer a compelling thesis: they operate within heavily regulated industries with structural demand that only increases alongside global population growth. Unlike speculative sectors, water-related enterprises benefit from high barriers to entry and permanent relevance.

Why Water Stocks Make Sense Now

The logic is straightforward. Resource management infrastructure cannot be replicated overnight – regulations and capital requirements create moats that protect established players. Combined with demographic tailwinds and resource scarcity, water stocks have built-in tailwinds. While relevance doesn’t guarantee outsized returns, it does provide a foundation of stability most investors should appreciate during volatile market periods.

Three Compelling Plays on Water Infrastructure

American Water Works (AWK): Scale and Consistency

Among the sector’s heavyweights, American Water Works stands out for its extensive footprint. The company delivers water and wastewater services across 1,700 communities spanning 14 states, serving approximately 3.5 million active customers. This scale provides operational leverage and pricing power within the regulated utility framework.

Financially, the company demonstrates steady if unspectacular performance. Currently valued at 29.34X trailing-year revenue—a notable step up from prior-year multiples around 26X—the premium reflects growth expectations. Analysts project EPS reaching $5.25 in the current fiscal year, representing 7.14% expansion from the prior year’s $4.90. Forward estimates suggest further progression to $5.66, with bull-case scenarios showing 7.81% gains.

The dividend adds another layer of appeal. With a forward yield of 2.13% and a payout ratio of 58.93%, the income stream remains sustainable without compromising reinvestment capacity. For income-focused investors, water stocks like this one deliver both capital appreciation and yield.

Essential Utilities (WTRG): Better Valuation, Stronger Growth

Essential Utilities presents an attractive alternative in the regulated utilities space. Beyond water and wastewater services, the company extends into natural gas in select markets, diversifying revenue sources. With 5.5 million customer relationships across residential, commercial, and industrial segments, Essential operates at significant scale.

What makes WTRG intriguing from a valuation standpoint is its pricing. Trading at 19.5X trailing earnings—below the prior year’s 20.06X average—the stock offers a window of opportunity. The forward multiple sits at 20.08X. Here’s the kicker: analysts expect EPS to vault to $2.07 in fiscal 2024, a jump of 11.29% from $1.86 previously. The following year could see earnings climbing further to $2.14, with upside scenarios reaching $2.20.

The dividend story strengthens the case. At 3.27% forward yield with a 60.22% payout ratio, Essential demonstrates both income generation and financial discipline. Among water stocks, WTRG balances growth, valuation, and yield in a way that appeals to diversified portfolios.

Global Water Resources (GWRS): The Smaller Play with Bigger Potential

Global Water Resources, based in Phoenix, takes a different approach. Rather than massive scale, GWRS focuses on regulated water systems management in metropolitan Phoenix and Tucson. The company serves roughly 82,000 people across 32,000 homes and operates with a sub-$295 million market capitalization.

The compact size cuts both ways. Yes, volatility is elevated compared to mega-cap utilities. But that same characteristic creates leverage to upside scenarios. Global proved this point by delivering 7 cents in recent EPS—beating the 6-cent consensus. The company maintains profitability consistently.

Valuation appears stretched at first glance: 45.79X trailing earnings and 41.84X forward earnings. However, analysts project EPS climbing 7.7% to 28 cents this year, then advancing to 31 cents subsequently. The 2.53% forward yield provides yield during the growth phase. For risk-tolerant investors seeking exposure to water stocks with asymmetric upside, GWRS deserves consideration despite its premium multiple.

The Investment Case

Water stocks offer a fundamentally sound thesis. Regulatory moats protect existing players, demographic trends ensure persistent demand, and the sector’s maturity prevents boom-bust cycles common in speculative corners of the market. Whether you prioritize scale and consistency, balanced growth with attractive valuation, or smaller-cap leverage, the water sector provides options suited to different investment profiles.