AWK - American Water Works Will Benefit From Future Interest Rate Cuts

2024-05-23 10:04:17 ET

Summary

• American Water Works Company presents an attractive entry as the price has been suppressed alongside the rest of the utility sector.
• AWK has a history of growing its dividend on an annual basis and has transparent plans for capital investments, including infrastructure improvements and acquisitions.
• While AWK's current dividend yield of 2.3% may not be high, its dividend growth prospects and potential for capital appreciation make it an attractive candidate for a dividend growth portfolio.
• Revenue has increased by 7.7% YoY and EPS growth has a targeted range between 7 - 9%.
• Based on my dividend discount calculation, I estimate a fair value of $150 per share. This presents a potential upside of nearly 12%.

Overview

I really enjoy seeing the dividend income in my portfolio grow over time with the least amount of effort on my end. This enjoyment prompts me to spend a lot of time looking for the next opportunity to increase my annual passive income. I believe that utilities offer a ton of opportunities at the moment as these businesses are typically very sensitive to interest rate changes. Utility-based companies often depend on attractive debt financing to fund operations, expansion, project development, and more. Therefore, the entire sector remains suppressed and disconnected from the S&P 500 ( SPY ) at the moment....

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