American Water Works Company Inc. AWK continues to expand operations through organic and inorganic initiatives. Rising earnings estimates, long-term investment plans and growth opportunities make AWK a solid investment option in the utility sector.

Let us focus on the factors that make this Zacks Rank #2 (Buy) company a strong investment pick at the moment.

AWK’s Earnings Projections & Growth Rate

The Zacks Consensus Estimate for 2025 earnings per share (EPS) has moved up 0.4% in the past 60 days to $5.71. The Zacks Consensus Estimate for 2026 EPS is pinned at $6.13, implying an increase of 0.3% in the past 60 days.

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AWK’s long-term (three-to-five years) earnings growth rate is 8.3%.

AWK’s Systematic Investments & Rate Hikes

American Water Works plans to invest $3.3 billion in 2025 to strengthen and expand its water and wastewater infrastructure, with a major portion utilized for infrastructure improvements in Regulated Businesses. It aims to invest $17-$18 billion in 2025-2029 and $40-$42 billion in 2025-2034. These systematic investments will extend and strengthen AWK's infrastructure. This will assist AWK in catering to the rising demand from its expanding customer base and, in turn, generating more revenues.

AWK recoups the capital investment made in its infrastructure through rate hikes at regular intervals. The new rates, effective since Jan. 1, 2024, added $373 million to the company’s annual revenues in 2024. New rates will increase 2025 revenues by $129 million and as of Jan. 1, 2025, the pending rate cases, if approved without any changes, can increase revenues by another $178 million.

Dividend History of AWK

American Water Works has consistently increased shareholders' value by paying dividends. Nearly 100% of its net income is generated from regulated operations. American Water Works’ focus on expanding regulated operations through capital investments is yielding stable returns. This has allowed the company to increase the value of its shareholders.

Currently, its quarterly dividend is 76.50 cents per share, resulting in an annualized payout of $3.06. The company expects its dividend per share to increase 7-9% in the long term, subject to approval from the board of directors. AWK’s current dividend yield is 2.22%, better than the Zacks S&P 500 composite’s 1.56%.

Solvency

The time-to-interest earned ratio at the end of fourth-quarter 2024 was 3.6. The ratio, being greater than one, indicates American Water Works’ ability to meet future interest obligations without difficulties.

AWK Expands Through Acquisition & Organic Initiatives

The company is expanding its customer base through organic initiatives and acquisitions. In 2023, it added 18,100 customers through 23 acquisitions in eight states. In 2024, it completed 13 acquisitions, which added 69,500 customers. Including customers added through acquisitions, the company added 90,000 customers to its existing base. American Water Works’ pending 17 acquisitions (as of Jan. 1, 2025), when completed, will add another 24,200 customers to its customer base. Acquisitions allow the company to get fresh demand for its services and expand revenue stream.

The company remains committed to expanding its business through inorganic and organic ways. American Water continues to focus on the acquisition of utilities that provide services to 5,000-50,000 customers. The company is also open to large acquisitions if an opportunity arises.

AWK’s Price Performance

In the past year, the stock has gained 16.7% compared with the industry’s 9.4% growth.

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Other Stocks to Consider

Some other top-ranked stocks in the same sector are Exelon Corporation EXC, Middlesex Water Company MSEX and Atmos Energy ATO, each carrying a Zacks Rank of 2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

EXC’s long-term earnings growth rate is 5.7%. The Zacks Consensus Estimate for 2025 and 2026 EPS has increased 5.2% and 5.4%, respectively, year over year.

MSEX’s long-term earnings growth rate is 13.96%. The Zacks Consensus Estimate for 2025 and 2026 EPS has increased 3.3% and 3.1%, respectively, in the past 60 days.

ATO’s long-term earnings growth rate is 7.01%. The Zacks Consensus Estimate for fiscal 2025 and 2026 EPS has increased 0.1% and 0.3%, respectively, in the past 60 days.

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Exelon Corporation (EXC) : Free Stock Analysis Report

Atmos Energy Corporation (ATO) : Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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