When the word commodity is uttered, oil, gas, gold, corn, wheat, and the like, are the most common things come to mind. Water is rarely mentioned in the same breath; however, the fundamentals of water are even more significant than oil, typically considered the engine of industry among other things.
Water is the only commodity that will erase civilization the way we know it in a matter of a few weeks if we had to completely do without it. The common misconception of water is that it is so plentiful that we should never have to worry about it. It is true that water covers three quarters of the surface of the Earth; however, 97.5% is this water is undrinkable seawater, and 70% of the potable water is still frozen in the Artic glaciers.
Is water the most valuable commodity? Indeed it is, and water is furthermore growing increasingly scarce. Chief Economist Willem Buiter of Citigroup is strongly convinced that water will soon dwarf such commodities as oil or gold in strategic importance.
The biggest use for water is agriculture, and as the world population expands, the need for foods will also increase exponentially. A study recently coming out of the Netherlands estimated that agriculture already accounts for 92% of water consumption. It is commonly known that undrinkable water can easily be made potable through ever evolving technology, less well known is the cost associated with the process of making drinkable, which can be considerable.
Of course, the question of exactly when water consumption will reach a critical point is a subject of much debate. Nevertheless, there is no denying that developing countries are rapidly advancing in terms of wealth creation, and their growing middle class will put further strain on an already shrinking supply of fresh water. The United Nations estimates that some 80 countries are already being plagued by water shortages and that fully 67% of the world population will be “water stressed” by 2025.
Investing in water stocks at this point can be looked at as a long term play on the water trend, and the following companies are a few of the more commonly suggested by financial analysts:
- American Water Works Co.: Servicing parts of the U.S. and Canada, this company has a yield of 2.90%, with the stock trading around $32 in the beginning of 2012. The payout ratio is 50% is the target price is $36.
- Aqua America Inc.: Serving 3 Million customers from Texas to Maine, the dividend yield is 3%, whereas the payout ratio is 60%. Trading in the low $20, the target is $25.
- American States Water Co.: This water company has paid dividends since 1931, with the yield presently standing at 3.19% and the payout ratio is 51%.
Some water ETFs to consider:
- Powershares Water Resource
- First Trust ISE Water Index Fund
- Guggenheim S & P Gloabal Water Index
- Powershares Global Water
The most opportune time to invest in a stock sector is when nobody else is talking about the sector, therefore, investing in water companies can definitely be a potent addition to any well diversified portfolio.