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Aqua America: This Dividend Aristocrat Is A Hold

Published Tue, 11 Jun 2019 15:18:27 -0400 on Seeking Alpha

Image Source: Gurufocus
As a dividend growth investor, I am always watching for high-quality companies in defensive sectors trading at fair value or at a discount to fair value.
While the utility sector is about 8% of my portfolio and accounts for 8% of my dividend income, I find that with the current utility sector PE ratio of 22.4 and Shiller PE ratio of 30.5, the sector is largely overvalued at this time.
One company that I would love to own one day is the water utility and soon-to-be gas utility company with its recent acquisition of Peoples Gas, Aqua America (WTR).
I will detail the overall reasons I would like to own this company which include its dividend safety and growth profile, the resilient nature of Aqua America's business, and its strong management team. We'll then delve into the only factor that is currently discouraging me from initiating a position in the company, which is its valuation. I'll then wrap it up by estimating future total returns from the company's current stock price, which is what I believe justifies my sitting on the sidelines.
A Very Safe And Moderately Fast Growing Dividend
As a dividend growth investor, dividend safety is very important to me because eventually, I'll be relying on dividends to meet the bulk of my expenses.
I will analyze Aqua America's EPS payout ratio, but I won't be analyzing the company's FCF payout ratio because as I've discussed with other utilities I have wrote about, utilities often invest in... Read more