Special Report: Water Investing 101: The Best Water Stocks to Buy

The world is losing the battle for a necessary and sought-after natural resource.

It's not oil; that's still being pumped in abundance. It's not clean air, though that's been a concern at times. And it's not food. Although the food industry is partially responsible for this resource being depleted...

We're losing the battle for fresh water.

You may not think much of taking a hot shower after work, grabbing a glass of water from the sink, or flushing the toilet and washing your hands, but the water you use for all of these things has become rarer and harder to get by the minute.

You see, even though 70% of the Earth is water, only 1% of it is clean enough for human consumption. The rest is either trapped in glaciers or is salty ocean water.

Even worse is the fact that the water we have easy access to is often wasted. The water infrastructure in the U.S. is old and poorly maintained. The American Society of Civil Engineers gave the entire pipeline system a D+ grade in its latest comprehensive report card.

Factors that lead to this dreadful grade include an estimated 240,000 water main breaks per year, and an estimated 6 billion gallons of water wasted every day. And that's just from the water that gets to us and isn't used properly; another 7 billion gallons simply leaks out of pipes never to be seen by anyone.

The ASCE estimates that the U.S. will need to spend as much as $4.5 trillion to fix its failing infrastructure by 2025, and $108 billion of this will have to go toward water and wastewater structures alone.

This comes from pipes that are decades old and in need of repairs.

And the U.S. isn't the only country lacking in this natural necessity. A decade-long study performed by NASA and the University of California showed that 21 of the world's 37 largest aquifers were past their sustainability tipping points, which means more water was removed than was replenished.

Below is a map of these aquifers and their places on the depletion scale:

yearly trend in aquifer water lever anomolies

As you can see, these aquifers are huge, and the majority are being emptied faster than they're being refilled.

A quick Google search on water shortages and droughts brings up not only stories from across the U.S., but news of droughts in, India, China, Ghana, Kenya, Thailand, Somalia and more.

And it's not just because it's hotter out there. It's because clean, usable water is harder to get than it used to be as freshwater aquifers and wells are over-drawn and emptied, and infrastructure breaks down.

Now more than ever it is time to invest in the most necessary resource for living things next to air.

Water.

While people the world over treat aquifers like all-you-can-eat buffets, investments in companies that improve our retention and use of this priceless resource will grow in value.

Below you'll find six worthwhile plays on everything water.

Pipes, Pipes Everywhere

First, let's focus on the water we have on hand: wells and aquifers. Over-drawing the water is a bad enough problem that we can look into with other technology, but even if these resources were endless, they're of no use to anyone without a decent infrastructure to get the water out to people.

American Water (NYSE: AWK), the largest publicly traded water company in the world, not only has its own set of treated water storage facilities, but offers services to both residential and business areas in pipeline repair and upkeep. The company has 49,000 miles of water mains and collection pipes, and offers its repair services to 47 states and customers in Ontario, Canada.

At the end of 2016, the company had gained more than 42,000 new customers through aquisitions throughout the year, and had another 40,000 in the pipeline for pending acquisitions. The company is constantly expanding its network, and improving upon the network it has, too.

For the full-year 2016, the company allocated a record $1.3 billion to regulated infrastructure investments, meaning repairs and upgrades to the aging system. It's not the $3.6 trillion the ASCE estimates will be needed to get U.S. water back on track, but it's a start!

And the company has a great track record investors will love. American Water is very proud of its consistent dividend raises. Since 2014, the payout has had a CAGR of 10%, and is looking good to continue those increases in 2017.

For ongoing improvement and repair of America's water infrastructure, American Water is a great investment with excellent returns.

And Not a Drop to Drink

Now how do we make usable the vast amounts of saltwater and wastewater we have?

There are two big ways to get clean water from salt- and wastewater: biological treatment and membrane technology. Biological treatment includes decontaminating the water with chemicals or, more recently, with naturally occurring bacteria. Membrane technology pushes the water through a physical membrane that is designed to remove certain contaminants, including the salt in ocean water.

The U.S. has the second-largest number of desalination plants in the world, surpassed by only Saudi Arabia. However, the biggest builder and operator of these plants is France.

Veolia (OTC: VEOEY) is a French company with businesses in water, environmental services, and energy services and transportation. Its desalination plants produce as more than 13 million cubic meters of clean water per day through a network that spans 108 countries.

In 2017, the company won two major contracts: 

The first is for the design and construction of a new iron removal plant with a capacity of 40,000 cubic meters of water per day. The project, worth €7.6 million (about $8 million), will be part of Veolia's plans to expand its business in Senegal.

The second contract, worth €156 million ($164.5 million), includes desinging and constructing 5 water treatment plants, 12 service reservoirs, 5 pumping stations, and over 430 kilometers of water pipelines across the Colombo region of Sri Lanka.

Veolia has built more than 250 water and wastewater treatment plants in the Asia-Pacific area over the past 20 years, making it one of the company's largest water resource markets.

Back in 2016, Veolia also extended its contract with the Milwaukee Metropolitan Sewage District for its ongoing wastewater collection and treatment services. The company's business is to provide clean water to customers and collect wastewater to either be safely discharged or recycled.

This is where the treatments come in: Veolia uses both biological and membrane technologies to decontaminate water. It has a particular interest in providing and recycling the water used in shale fracking, a water-intensive industry. This contract amounts to $500 million in income for the company.

Veolia also offers an annual dividend which stands at €0.80 ($0.84) per share.

The U.S. company General Electric (NYSE: GE) also has a large, global stake in water desalination...

It operates the largest desalination plant in Africa: located in Algiers, the Hamma plant supplies the city with 53 million gallons of drinking water per day. GE also powers one of the world's largest desalination plants in Australia and the largest wastewater treatment facility in the world in Abu Dhabi.

GE has also installed its own bioreactor membranes into Stockholm's Henriksdal water treatment plant. These membranes are made of a special synthetic resin and undulate to clean the water faster, better, and at a much lower price.

GE's reach into several sectors gives it the freedom to expand its different technologies. Even when the company isn't operating its own plants, it is powering and improving upon others.

Its steady divident payout of $0.24 per share shows it also has plenty to spare for its supporters.

Dow Chemical Co. (NYSE: DOW) water division is a major player in the water treatment game.

Its uniquely designed Tequatic Plus filter high-solids water, meaning it can take on more than the average desalination design.

The company's other designs also reduce the energy needed to treat water efficiently and have expanded the world's wastewater reuse options.

Dow also has holdings in Saudi Arabia where it's contracted the Sadara Chemical Company to construct a membrane fabrication facility. It has also launched a large-scale pilot project at the King Abdullah University of Science and Technology to access seawater from the Red Sea and use it to experiment with new purification technologies on an industrial scale.

And keeping up well with our lineup of water treatment companies, Dow's dividend rose from $0.42 in early 2015 to $0.46 per diluted share in 2017.

If you're looking for a well-established investment, Veolia and GE are settled into the water treatment market. For fast innovation and new technologies, Dow Chemical Co. is the way to go.

The Future is Submerged

Speaking of new technologies: by now I'm sure you've heard of the Internet of Things. If not: it's the ongoing trend of items (your phone, your watch, your glasses, your car...) being connected to the internet or the cloud. Many industries are using this technology to monitor their systems and increase productivity and efficiency.

And water is no different. Watertech Capital's Stephen Hoffman says the niche of the Internet of Things as it relates to water will grow 14-16% annually for the next several years.

As with everything, the future of water is becoming computerized.

Badger Meter Inc. (NYSE: BMI) is a U.S. company with a wide reach. It sells mechanical and electronic water meters and products to measure and control goods that travel via pipes. These include water, wastewater, oil, and gas among other things.

Badger's meters monitor water usage so customers can be aware of what they're using and what the utilities are charging them for. The utilities use them for billing as well. 75% of the company's meter sales go to municipal water systems.

The company's BEACON Advanced Metering Analytics system provides a cellular residential radio and allows customers the ability to download an app (EyeOnWater) to monitor their water usage any time on any mobile device. Since its introduction in early 2014, the company has extended its advanced metering analytics offerings with additional devices compatible with the BEACON meter.

Badger acquired its largest distributor, National Meter and Automation Inc., in October 2014. This provided the company not only with stronger control over its distribution, but services for its customers including meter testing and installation, water audits, and leak detection.

In 2016, the company's services were deemed strong enough to be awarded a contract with American Water. As the utility grows its customer base, this company and its devices are reaping the rewards.

Itron Inc. (NYSE: ITRI) offers similar meters for electricity, gas, and water. Its meters also measure use of water for both residential and business use. And, like Badger, the information is available through software, so customers can always be aware of the data being collected.

Itron, however, goes a step further in offering data interpretation as a service.

First, it has analysis software available to customers which uses the collected data to make short- and long-term predictions about the customer's water use and costs. It also has a subsidiary called Private Cloud which allows businesses to save their usage information and consult with Itron experts to come up with efficiency solutions.

And those experts are available for consultations for all customers. Its Professional Services include installation services, system maintenance and training, and technical support.

Where Badger has more ease of use, Itron is built for in-depth information processing.

Both use the Internet of Things technology to make saving water easier. The IoT market at large is growing exponentially as data collection and analysis become the key to operational efficiency. And nowhere is this development more necessary than in today's drought-stricken water market.

Whether you're more concerned with fixing the pipelines of the past, or getting the newest water-watching tech, these companies are all set to repay your investment many times over as the world's need for water makes these companies indispensable.

Good Investing,

Keith Kohl Signature

Keith Kohl

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A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.


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