Water isn’t something we typically think of when we think of investments. After all, it’s a resource that seems abundant. After all, 71% of the earth is covered with water. Plus, getting it is as simple as turning on the tap for most of us internet users. But deciding which water stocks you should invest in today is the hardest part.
Investing in water companies’ stocks is a smart investment. As threats like climate change and pollution loom, water is a growing global concern, and investing in it has become a good idea.
Deciding which water stocks to buy is the hardest part. Water is a diverse industry offering multiple opportunities for investments.
This includes investing in water utilities, water tech companies, and water treatment plants. Some companies also focus on water infrastructure and water-related equipment.
No matter which water stocks you plan to invest in, you should understand the basics of the water industry first.
Learning about the current state of water in the world will help you decide where you want to put your hard-earned dollars.
After that, we’ll give you a list of the best water stocks to invest in currently, including a few ETFs which make for exceptionally stable investment opportunities.
| Water Stock | Market Cap | 5 Year Growth | Company Details |
|---|---|---|---|
| Evoqua Water Technologies Corp (AQUA) | $4.72 Billion | +85.58% | They provide wastewater treatment technologies and emergency water supply solutions, amongst other things, to thousands of customers worldwide. |
| Xylem Inc (XYL) | $18.41 Billion | +104.39% | Xylem focuses on updating outdated water infrastructure worldwide with water-loss prevention technologies. |
| Danaher Corporation (DHR) | $191.64 Billion | +231.11% | This is a multi-faceted corporation with businesses in many water-based areas, including water treatment and testing. |
| Middlesex Water (MSEX) | $1.70 Billion | +149.22% | Owns and operates water and wastewater systems in New Jersey and Delaware |
| California Water Service (CWT) | $3.22 Billion | +72.78% | Provides wastewater services to residents in California |
| American Waterworks (AWK) | $29.30 Billion | +119.11% | They’re the most geographically diverse publicly traded utility with operations on both the east and west coasts. |
| York Water Co. (YORW) | $597.05 Million | +23.64% | The oldest investor-owned water utility in the U.S., I started in 1816. |
| Essential Utilities Inc. (WTRG) | $12 Billion | +57.57% | A water and natural gas company that serves over five million people under two brands: Aqua America and People’s Natural Gas Company. |
| Ecolab (ECL) | $55.91 Billion | +55.04% | Provides water treatment, purification, and cleaning services to many commercial customers. |
| Invesco S&P Global Water Index ETF (CGW) | +78.90% | It offers a fund of 50 different companies spread throughout the industry. | |
| Invesco Water Resources ETF (PHO) | $1.41 Billion | +103.22% | This fund only features companies that create water conservation and purification products |
| Invesco Global Water ETF (PIO) | +74.91% | This fund focuses on large-cap companies, while PHO only looks at small and mid-cap offerings. | |
| Global Water Resources Inc. (GWRS) | 339.06 Million | +81.31% | The only American water company to pay a monthly dividend. The company owns and operates regulated water, wastewater, and recycled water in Phoenix, Arizona. |
| Algonquin Power and Utilities (AQN) | 11.58 Billion | +52.66% | They have a three-part business: regulated utilities, non-regulated renewables, and global infrastructure. |
Investing in Water Stocks – The Basics
At some point, someone probably taught you that water is a renewable resource, and technically, that’s true. However, the rise of industrialization, agriculture, and pollution across the globe has led to scarcity. That means water is now a commodity.
As the world population increases and climate change continues on its course, water scarcity is only projected to worsen.
According to the World Wildlife Fund, 2/3rds of the world’s population will be facing water shortages by 2025. Even in relatively wealthy countries like the U.S., there are concerns about water resources, especially in drier states like California and Texas.
So, water is similar to other resources we consume but don’t have enough of, like coffee or soybeans. And that means there are plenty of water investment opportunities.
How to Buy Water Stocks
Investing in water stocks is essentially like investing in any other industry. However, with water, there’s a wide range of diverse companies to consider. You could choose to invest in water by purchasing stocks in:
- Utility companies
- Water technology
- Water treatment facilities
- Water-related equipment companies
- Desalination plants
What you choose to invest in will affect the type of research you should do beforehand, but, in general, you should look at the following:
Allocation of Capital
Consider how the company handles free cash flow. You can do this by researching the companies’ historical data.
Inner-Workings of the Company
Examine the management team, overall company culture, values, and processes. Ideally, the company will have a straightforward and disciplined approach without being too rigid.
Industry Dynamics
Since stocks in water cover a broad range of industries, from purification plants to bottling companies, you’ll need to dig into the specific sector of the company you’re considering.
Consider things like how much growth the industry is capable of, how much capital is needed to grow, and how much competition there is overall.
Ability to Innovate
Determine whether the company you’re considering is capable of rethinking old norms. As the world changes and grows, the way we handle water will, too. So, the ability to innovate is crucial.
Investing in Water ETFs and Index Funds
If purchasing individual stocks isn’t your game, you can also consider investing in water ETFs or index funds. ETFs and indexes are more broadly diversified than an individual company, making them a bit more stable.
They might be a good counterbalance in your investment strategy, mainly if your portfolio relies heavily on more speculative investments.
Investing in Water Futures
In 2020, the Chicago Mercantile Exchange launched the first water futures market tied to water prices in California. The water futures market allows suppliers and farmers to manage risk. They can lock in a water price to protect against future increases.
However, for novice investors, it’s probably not the safest move. Investing in futures is tricky and is best left to hedge funds and investing pros.
Pros and Cons of Investing in Water Stocks
At first glance, it seems like investing in water is an absolute no-brainer, but there are some risks to consider too. Below, we cover the many pros and cons of investing in water.
Pros
- The industry is projected to grow. Whether you’re looking at the bottled water industry, wastewater treatment facilities, clean water stocks, or water tech, experts project growth in the coming years. This projection makes sense given current concerns about climate change and pollution.
As consumers worry about polluted well water, they turn to bottled sources. As governments and municipalities struggle to source clean water, they turn to new technologies and look for better ways to treat wastewater efficiently.
- Investing in water allows you to support sustainability views. Several companies are working to solve the water scarcity problem. Like Evoqua (AQUA), some companies are putting resources towards removing dangerous PFAS, sometimes called forever chemicals, from our water.
Others, like Xylem (XYL), focus on smart infrastructure, so less usable water is lost to preventable issues like leaky pipes. Still, others focus on desalination or improving water treatment facilities, all of which helps with water scarcity.
- You can start slowly with a relatively safe ETF. If you’re a novice investor, investing in a water ETF or index will give you a great way to get your feet wet, so to speak. You’ll gain geographic and subsector diversification for your portfolio. And, you’ll be able to learn firsthand about the water industry as a whole.
Once you understand how the industry fluctuates, you might decide to invest in a few individual water company stocks. Taking this route means little risk with the potential for significant rewards.
Cons
- It can be a very long-term investment. Climate change and pollution are some of the biggest drivers of water innovation, but it’s important to remember that these threats could take years to fully materialize. That means a significant return on your investment could be a long way away.
Though water futures offer the ability to make faster returns, they’re also risky and only available for California’s market as of now. So, keep in mind that investing in water is a long game, not a short play. You’ll need to be patient, primarily if you’re investing in an ETF or index.
- Thorough research is a requirement. If you invest in something like drinking water stocks, especially on an international level, it’s crucial to do thorough research. Water companies can sometimes end up in debt, especially when droughts or unfavorable geopolitics affect their operating region.
Foreign currency depreciation can also present a problem. So, you’ll need to monitor exchange rates. If you’re new to water stocks or investing in general, this can create complications.
- Looks can be deceiving with water stocks. Some stocks, like water utilities, seem relatively safe but can have hidden risks. For example, local regulatory agencies have a massive effect on how well they do.
In 2001, California’s public utility commission (CA PUC) illustrated this point. They decided that water utilities and shareholders needed to absorb the higher electricity costs induced by the Enron scandal. As a result, what was once a “safe bet” quickly became a risk for investors.
See Related articles: What is the Environmental Impact of Geothermal Energy?
Best Water Stocks You Should Invest in Today
Now that you have a basic understanding of investing in water, let’s look at some of the best options. Below is a list of water stocks you should consider investing in.
1. Evoqua Water Technologies (AQUA)
Evoqua is a global company that works with industries and municipalities on all things water. They provide wastewater treatment technologies and emergency water supply solutions, amongst other things, to thousands of customers worldwide.
Their interest in PFAS removal is particularly relevant to consumers and governments today. The company offers carbon and resin solutions to remove these harmful chemicals from drinking water supplies.
Some think that the EPA will soon label PFAS as a harmful substance, which would force local governments to find ways of cleaning them up, ways Evoqua can readily offer.
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2. Xylem (XYL)
Xylem focuses on updating outdated water infrastructure worldwide with water-loss prevention technologies.
Xylem offers smart infrastructure called SmartBall technology. It’s a multi-sensor tool that can identify acoustic signals related to leaks and gas pockets in water lines. In 2015, it helped find a costly problem that had a massive effect on Africa’s largest water utility, proving its effectiveness.
The company also offers smart meters that help water utilities avoid significant losses from theft and leaks. All this means the Xylem will likely continue to grow, especially as the need to reduce water loss becomes more important.
3. Danaher Corp. (DHR)
Danaher is a multi-faceted corporation with businesses in many water-based areas, including water treatment and testing. The company’s incredible diversity makes it tempting to invest in. If one area declines a bit, the others will likely more than make up for it.
For example, in the third quarter of 2020, revenue for the corporation’s environmental and applied solutions division dropped by 1%. At the same time, however, the life sciences division saw revenue grow by 72.5%!
See Related: Best Lithium Stocks to Invest in Today
4.Middlesex Water (MSEX)
Middlesex Water operates in parts of New Jersey and Delaware. There, it owns and operates water and wastewater systems. Some of the systems are government regulated, and others cater to private customers. Though it’s smaller than some of the other companies on this list, Middlesex Water still serves over half a million consumers.
Year after year, Middlesex Water shows dividend increases. In fact, as of 2021, it’s shown 49 consecutive years of increases, making it a company to consider investing in.
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5. California Water Service (CWT)
California is a big state, and California Water Service provides wastewater services to many of its residents. This public utility also caters to natives of Hawaii, New Mexico, Washington, and Texas, making it the third-largest publicly traded utility.
As of 2021, its payout to shareholders has increased for 54 years, making this utility look good to potential investors.
6. American Waterworks (AWK)
American Waterworks operates water and wastewater facilities in 16 states and shows continued growth thanks to increased residential demand. They’re the most geographically diverse publicly traded utility with operations on both the east and west coasts, allowing them to provide water services for more than 14 million people.
AWK is also seeing more commercial demand of late, which should push their growth along. When it comes to water stocks, they’re a great company to keep an eye on.
See Related articles: 5 Climate Change Investment Opportunities for Your Portfolio
7. York Water Co. (YORW)
York is the oldest investor-owned water utility in the U.S. Starting in 1816, the company sources, purifies and distributes drinking water in three counties of Pennsylvania.
Like most utilities, this company only grows through an increase in customers since it cannot control its prices. Though the number of Pennsylvania residents isn’t increasing all that fast, York Water does show a talent for territory acquisitions. With a highly profitable operating margin of 45%, York is a favorite for water stock investors.
8. Essential Utilities Inc. (WTRG)
Essential Utilities Inc. started as a water utility company in Pennsylvania. Today, it’s a water and natural gas company that serves over five million people under two brands: Aqua America and People’s Natural Gas Company.
Though one-third of the company’s revenue comes from natural gas, the remaining two-thirds comes from water, and the company continues to grow. Like most utilities, you can count on slow but steady growth here, with revenue increasing about 1% per year.
9. Ecolab (ECL)
Ecolab provides water treatment, purification, and cleaning services to many commercial customers.
It specializes in areas like healthcare, hospitality, and food services, where it offers cleaning supplies and water treatment solutions.
With a world that’s growing more and more focused on cleaning and water treatments, Ecolab will likely see growth in the future.
10. Invesco S&P Global Water Index ETF (CGW)
Consider the Invesco S&P Global Water Index if you’re looking for an ETF to invest in. This one is perfect if you’re new to the water investment world because it offers a fund of 50 different companies spread throughout the industry.
There are utilities, infrastructure companies, equipment providers, and material manufacturers included in this fund, fifty percent of whom operate in the U.S. The other half stretches globally, giving investors more diversity.
A fund like this won’t generate massive returns quickly, but it consistently does well. So, it’s ideal for those looking for a relatively safe start in the water investment world.
See Related: How To Invest In Infrastructure [Step-by-Step Guide]
11. Invesco Water Resources ETF (PHO)
Invesco Water Resources is based on the Nasdaq OMX U.S. water index with a much narrower focus than the Invesco S&P. This fund only features companies that create water conservation and purification products. The companies may focus on residential, business, or commercial products.
There are 36 companies in the fund, and the vast majority of them are in the U.S. They include healthcare companies, utilities, and industrial product manufacturers.
12.Invesco Global Water ETF (PIO)
The Invesco Global Water ETF also uses the Nasdaq OMX, just like the Invesco Water Resources ETF. However, this fund focuses on large-cap companies, while PHO only looks at small and mid-cap offerings.
Less of the businesses in this ETF are U.S.- based. Instead, the companies are spread through the U.S., Switzerland, France, Japan, Brazil, and other countries. There are 43 stocks total, and the spread seems to work in investors’ favor most of the time, making this an ETF that’s worth considering.
13. Global Water Resources Inc. (GWRS)
Global Water Resources Inc. is the only American water company to pay a monthly dividend, making it particularly appealing. The company owns and operates regulated water, wastewater, and recycled water in Phoenix, Arizona.
Given that Phoenix is a growing metropolitan area, GWRS is growing too. Whether or not that growth will continue long-term is an unanswerable question, but regardless buying stock in Global Water Resources Inc. is likely to be a stable investment.
See Related: How to Buy Stocks Without a Broker
14. Algonquin Power and Utilities (AQN)
Algonquin Power and Utilities have increased its dividend every year since 2011, making it a stock worth looking at. AQN has a three-part business: regulated utilities, non-regulated renewables, and global infrastructure.
It serves over 1 million connections in the U.S. and Canada, and much of its renewable energy operations are under long-term contracts that have embedded inflation escalations.
These points make it a very appealing company to invest in, especially if you’re seeking something stable.
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Final Thoughts
The best water stocks to invest in will offer reasonable and relatively stable returns. Ideally, the company will also support your viewpoints surrounding sustainability. That way, you can feel good about helping the company.
Given that the water industry is incredibly vast, it can be hard to know where to start with water investments. That’s why we recommend starting with a diverse ETF.
Once you’ve followed it for a while, you can move on to individual company investments.
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