Impressive track records deserve praise. We cheer for a sports team that makes it through its season without a single loss. We applaud a married couple who celebrates their 25th anniversary. And those of us who are investors hail the stocks that increase their dividends for 25 years, 50 years, or more.
There's one such stock that's worthy of the greatest acclaim. It boasts the longest streak of dividend hikes on the market.
High-quality H20
In the 1998 movie The Waterboy, Adam Sandler's character Bobby Boucher plays a waterboy for a college football team who winds up being the team's star player. One of his memorable lines in the movie is, "Now that's what I call high-quality H2O." I think Sandler's statement is quite applicable to American States Water (NYSE: AWR).
As its name indicates, American States Water (AWR) is a utility that provides water service. Its Golden State Water Company subsidiary serves around 263,400 customers in California. AWR's American States Utility Services (ASUS) subsidiary provides services for water distribution, wastewater collection, and treatment facilities on U.S. military bases. The company's Bear Valley Electric Service subsidiary distributes electricity to customers in San Bernardino County, California.
AWR has been in business for more than 90 years. It has paid a dividend for 348 consecutive quarters, dating back to 1936.
Other companies have paid dividends for longer periods. But none can top AWR when it comes to dividend hikes. The utility has increased its dividend for a remarkable 68 consecutive years. That puts AWR at the very top of the list of Dividend Kings -- the elite group of stocks with dividend increases of 50 consecutive years or more.
A growing dividend and more
AWR's dividend yield of around 1.8% isn't going to excite many income investors. However, the dividend is likely to grow significantly.
Over the last 10 years, the company has increased its dividend by a compound annual growth rate (CAGR) of 9.2%. Its policy is to achieve a CAGR of more than 7% over the long term. If AWR accomplishes this, its dividend will roughly double every decade -- and perhaps more frequently.
AWR's water services and electricity distribution businesses are monopolies in the territories in which they operate. The company's ASUS subsidiary has 50-year contracts with the U.S. government. That's the kind of stability that income investors love.
Want even more good news? AWR's total return over the last several decades has trounced the S&P 500.
AWR Total Return Level data by YCharts.
Is the stock a buy?
The best track record of dividend hikes around. Strong dividend growth. Rock-solid stability. Outperforming the S&P 500. AWR looks like a slam-dunk pick, right? Not necessarily.
These great things about the company have given it a not-so-great valuation. The stock currently trades at a forward price-to-earnings multiple of 28x. AWR arguably deserves a premium valuation, but it could be a constraining factor in how much shares rise over the near term.
While AWR has indeed beaten the S&P 500 in total returns over the last few decades, it's a different story in recent years. Over the past one-year, three-year, and five-year periods, the S&P has delivered a higher return than AWR.
I still think, though, that AWR remains a good pick for income investors. You can certainly find higher dividend yields, but you won't find a better dividend-growth track record. On the other hand, my view is that growth-oriented investors will be better off looking for other opportunities.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
