Water is life, a simple but important fact to remember as part of an investing thesis. Every home, business, school, place of worship, hospital, etc., has to have running portable and wastewater services. Water also plays a crucial role in real estate development and must be considered when considering the broader macroeconomic trend of migration, especially to the Sun Belt portions of the United States in the South and West.
The past two years have accelerated the trend of population migration to parts of the country like Florida, Colorado, Arizona, Nevada, and Idaho. The western United States has been under severe drought conditions for years, and the surging populations are straining natural resources like the Colorado River and Lake Mead. Atlanta is constantly battling South Carolina for access to lakes just over the state line to provide water service to a growing metropolis.
While California may not be growing like it traditionally has, it still houses some of the largest cities in the nation, and the Los Angeles and Napa rivers have slowed to trickles. Unless the market can figure out ocean water desalination (and get past the state’s onerous regulatory landscape) in a hurry, it’s difficult to see the water getting cheaper in the Golden State anytime soon.
To put it bluntly, growing and sustaining an area suitable for people to live and work requires reliable water and wastewater services, so that seems like a good feature of businesses worth owning. Water utility stocks don’t behave like supercharged unicorns, but they can provide steady and predictable results with a nice dividend component. Also, there are some pretty neat startups entering this sector as well.