Global Water Resources: A Monthly Paying Water Utility Company

This Company's Stock Has Been Blasting Higher

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Global Water Resources Inc (GWRS) is an interesting little water utility company. It isn’t as well known as something like American Water Works (AWK). However, it pays out a monthly dividend and has been blasting higher as of late.

(Source)

Utilities are an interesting investment in themselves. They provide regular cash flow and stability of earnings. This typically translates into regular and growing dividends for investors. Water utilities are even more so vital as humans literally couldn’t survive without water.

GWRS describes itself as a “pure-play water resource management company.” They operate and manage operations in regulated water, wastewater and recycled water utilities. They operate in Phoenix, Arizona. A little deceptive on the "global" part of their name.

If you haven’t heard of them, you are probably one of the individuals outside of Phoenix, Arizona. The company only has a market cap of around ~$400 million as well. Again, comparing to the behemoth AWK at an almost $30 billion market cap.

Growth

In their latest Q3 2020 earnings, they mentioned only 47,594 connections. Though that was after the addition of 2,279 connections, which worked out to 5% growth for the quarter.

(Source)

It hasn’t been only organic growth growing this company either. They have been involved with several acquisitions.

“Our recent acquisition of Mirabell Water represents the ideal ‘tuck-in’ that complements our strong position for growth as established by our core regional assets. We continue to pursue similar opportunities across Pinal and Pima counties of Arizona. We believe our strong balance sheet and operating results enables us to improve and grow our core asset base in Arizona, as we pursue efficient growth and consolidation in these and other counties across the state, and eventually throughout the Southwest.

They have even taken another acquisition since that earnings report. Only another 115 more active water connections - but an acquisition nonetheless! They also mentioned the proximity to Mirabell water made it a “logical extension.”

“Francesca’s close proximity to Mirabell makes it a logical extension of our regional footprint,” stated Global Water Resources president and CEO, Ron Fleming. “The acquisition will allow all stakeholders involved to benefit from our proactive approach to utility management that includes efficiency upgrades, automation, and our award-winning implementation of Total Water Management.”

When they reported their Q3 earnings, they boasted an increase of 8.2% revenue to $10.8 million. They attributed this to the “organic growth, increased consumption, and increased rates.”

Though that is impressive for a water utility, it isn’t really what is driving the share price to take off like a rocket.

(Source - Google Finance)

Nikola (NKLA)

This is where Nikola comes in, a hot EV play that hit the markets last year through a SPAC deal. They are dealing with their own dramas at the moment, which seems like could impact GWRS significantly - especially now that GWRS has shot higher on the back of what made them rally in the first place.

It was announced on January 7th, that NKLA and GWRS have entered into a master utility agreement. GWRS will provide water and wastewater services to NKLA’s new plant in Coolidge, Arizona.

“We are excited to take this next important step with Global Water Resources, who has a reputation as a strong water resource manager and provider for the region,” commented Mark Russell, CEO of Nikola. “Our goal for this manufacturing site is to design it with the smallest environmental footprint possible, while making the highest quality products for our customers. Our engagement of Global Water reflects a shared commitment to a sustainable future for Arizona and beyond.”

This news really got GWRS moving. This is significant news, even when you operate in one of the fastest-growing cities in the country. Investors seemed to take notice as well as the price shot up around 10% on that day alone. Though to be fair, the company’s shares were moving higher since lows throughout most of 2020. Since about November, the company has really started to take off. The latest catalyst looking like it was this NKLA deal. Since November 1st, GWRS has given investors total returns of 66.42%.

As mentioned though, NKLA had its own shenanigans going on. That could derail some of this optimism, but at least JPMorgan (JPM) sees a “less drama-filled” 2021 - which could keep the story intact. I previously held a position in NKLA myself and sold half my position when it more than doubled. I even held through most of the 2020 drama. Perhaps I sold too soon if JPM is seeing a positive 2021. That is yet-to-be-determined, but so far it was better to offload this position.

Dividend

Of course, one of the more interesting aspects of GWRS for dividend investors is…well..the dividend. It was much more attractive before the recent rally since November. That being said, the yield works out to 1.64%. It has a history of growing its dividend and it pays every month. This is in contrast to AWK - they pay quarterly and actually has even a smaller yield.

(Source - Seeking Alpha)

That being said, it isn’t massive growth or anything. Typically not even a full cent. Still, a 1% increase in a dividend is better than a 0% increase in the dividend.

The company increased its dividend 1% to $0.29208 on an annualized basis from $0.2892. This equates to a monthly dividend of $0.02434. The first dividend at the new monthly rate will be paid on December 30, 2020 to holders of record on December 16, 2020.

Conclusion

GWRS has rocketed higher. This is unusual for a utility company. Rebounding from the lows of 2020 was a large contributing factor - though the deal with NKLA helped pop shares even higher and provide the next catalyst.

The company pays a rather small dividend, but it is growing. I would anticipate continued growth should lead to being able to increase this further. Ultimately, the company is valued quite expensively at this time with the latest moves higher. I would also classify this as more of a speculative play for the NKLA deal and the idea that Phoenix can continue to grow significantly.

Disclosure: Long GWRS, JPM

This is not investment advice but for entertainment purposes only. Any decision to buy or sell is solely made by that individual. Speak with a financial professional to develop an investing plan that is right for your own objectives and goals.