Is American Water Works a Quiet Millionaire-Maker Stock?

Core Viewpoint - American Water Works has demonstrated impressive long-term performance, with a 15-year average annualized return of 11.6%, turning a $10,000 investment into $51,883, and $72,100 with reinvested dividends [2][3] Company Overview - Founded in 1886, American Water Works is the largest public water utility in the U.S., serving 14 million people across 24 states, yet it only accounts for less than 5% of the American population [4][5] - The company was spun out as a public entity in 2008 after being acquired by a German energy company in 2003, marking the largest utility IPO in U.S. history [4] Market Position and Growth Opportunities - The highly regulated nature of water utilities in the U.S. provides American Water Works with a competitive advantage, as it must secure approval from public utility commissions to operate in specific regions, limiting competition [8] - American Water Works has a return on equity of 10.46%, higher than the industry average of 9.61%, allowing for growth through customer acquisition rather than price increases [9] Recent Developments - In October, American Water Works announced a merger with Essential Utilities in an all-stock deal, creating a company valued at approximately $40 billion, which will add 1.9 million connections and $11.5 billion to its rate base [10][11] - The merger will enhance American Water Works' infrastructure with 227 water treatment plants and 29,500 miles of transmission and distribution systems [12] Financial Performance - The company reported a year-over-year earnings growth of 8.3% and a revenue increase of 9.7% in the last quarter, reaffirming its long-term growth target of 7% to 9% for both earnings and dividends [16] - American Water Works has a forward price-to-earnings ratio of 21.1, which is lower than the S&P 500 average of 27.5, and offers a dividend yield of 2.6%, significantly higher than the S&P 500 average [15] Dividend Policy - The company has increased its dividend by 143% over the past decade, with a payout ratio of 55%, indicating strong support for its dividend policy [16][17] - Management's commitment to growing its rate base annually aligns with its goal of maintaining a robust dividend for shareholders [17]