The U.S. equity market accounts for just over half of the global equity market capitalization. Developed markets outside of the US, emerging and frontier markets account for 46% of the world market capitalization. So investing in just US equities will not capture the potential growth of these markets according to an article by Wes Crill at S&P Global.

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Source: Why Should You Diversify, S&P Global

I agree with Wes. US equity investors must diversify globally. Simply going with US multinationals to capture the growth of foreign markets does not work in all scenarios.

The average holding period for US stocks has been declining for many years now. In the 1940s the average duration was 7 years. By the turn of this century it had fallen to below 1 year according to an article I wrote in 2010. A recent study earlier this year by researchers at MFS showed the holding period for NYSE-listed was 9 months.

A Reuters article noted that the average holding period for US stocks has declined to 5-1/2 months in June. From the article:

The length of time that investors hold shares has been shrinking for decades but the trend accelerated this year in volatile markets that have made people nervous about sitting on investments for too long.

There are different ways of slicing it, but Reuters calculations based on New York stock exchange data show the average holding period for U.S. shares was 5-1/2 months in June, versus 8-1/2 months at end-2019.

The previous record low of six months was hit just after the 2008 crisis. In 1999, for example, 14 months was the average.

Europe displays a similar trend, with holding periods shrinking to less than 5 months, from 7 months last December.

Source: Buy, sell, repeat! No room for ‘hold’ in whipsawing markets, Reuters

The reasons for the continuing decline in holding periods are many. Some of them include commission-free trading from discount brokers to others, 0% interest rates, pandemic-induced volatility, sports gamblers that are bored to death at home due to lack of sports betting, millennials living in their parents’ basements with nothing else to do, day-traders by the millions playing the market using the Robinhood app, unemployed people trying to multiply their $600+ weekly unemployment checks and also have fun doing it, the same people also throwing the $1,200 stimulus checks into the market to make some money to pay bills, etc. Not to mention algorithm-based machine trading by big institutions, locked-down realtors unable to flip houses finding their luck in the stock market, etc.

Whatever the cause, ultimately the inability of investors to hold stocks for the long-term is negative for the market and investors. Simply churning stocks all day long or even holding them for only a few months will not lead to a strong and growing equity market.

The utility sector is considered as one of the conservative and defensive sectors. Utility companies tend to be slow growth, stable and well-established dividend payers that some investors prefer to own. In most states in the US, utilities are highly regulated and are traditionally monopolies in their regional markets. Within the utility sector, water utilities are the most defensive and safest bets. This is because, water is the most basic necessities that everybody needs to live. In this post, let’s take a quick look at some of the players in this largely unpopular part of the US equities market.

The water utilities sector is relatively small with just nine publicly traded companies. Out of these, only two have market cap of above $10 billion. The top three firms in this sector are Essential Utilities(WTRG), American States Water(AWR) and American Water Works(AWK). Another notable player is York Water(YORW).

According to an article in the WSJ earlier this year, the water sector has a low dividend of 1.91% compared to 2.61% for electric and 3.99% for gas utility sectors. However water companies grow their dividends consistently and the dividends are most reliable.

1.Essential Utilities(WTRG):

Essential Utilities, Inc., formerly Aqua America, Inc., is a holding company engaged in providing water or wastewater services in the states of Pennsylvania, Ohio, Texas, Illinois, North Carolina, New Jersey, Indiana and Virginia. It is the holding company for its primary subsidiary, Aqua Pennsylvania, Inc. Its conducts business through Aqua Resources, Inc. (Aqua Resources) and Aqua Infrastructure, LLC (Aqua Infrastructure).

Currently the market cap is over $11 billion and the dividend yield is 2.04%.

2.American States Water(AWR):

American States Water Company (AWR) is a holding company. The Company’s segments include water, electric and contracted services.

Current market cap is about $3.0 billion and the dividend yield is 1.53%. It has raised dividends for the past 64 years with an average total return of 15% from 2009 to 2019.

3.American Water Works(AWK):

American Water Works Company, Inc. is a holding company for regulated and market-based subsidiaries throughout the US and Ontario, Canada. The Company’s Regulated Businesses segment provides water and wastewater services as public utilities in 16 states in the United States. The Market-Based Businesses consists of four segments, including Military Services Group, which conducts operation and maintenance (O&M) of water and wastewater systems for military bases; Contract Operations Group, which conducts O&M of water and wastewater facilities for municipalities and the food and beverage industry; Homeowner Services Group, which primarily provides water and sewer line protection plans for homeowners, and Keystone, which provides water services for natural gas exploration and production companies.

AWK is the largest water utility with a market cap of over $26.0 billion.

4.York Water(YORW):

York Water Company is a water utility in the United States. The primary business of the Company is to impound, purify to meet or exceed safe drinking water standards and distribute water. The Company also owns and operates approximately two wastewater collection systems and two wastewater collection and treatment systems. The Company operates within its franchised water territory, which covers approximately 39 municipalities within York County, Pennsylvania and nine municipalities within Adams County, Pennsylvania. Its wastewater operations include portions of five municipalities in York County, Pennsylvania.

York is a mid-cap stock with a market cap of about $615.0 billion. The company has paid a dividend each quarter since 1816, the largest streak in the US equity market.

The 5-year return of three stocks are shown in the chart below. American Water Works has had a solid growth of 185%.

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The year-to-date returns of the all the four stocks are shown below:

Note: Dividend yields noted above are as of July 30, 2020. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Source: Yahoo Finance

The other publicly-traded water utilities are:

• Middlesex Water Co (MSEX)
• Pure Cycle Corp (PCYO)
• Companhia de Saneamento Basico do Estado de Sao Paulo SABESP (SBS) of Brazil
• Artesian Resources Corp (ARTNA)
• Consolidated Water Co Ltd (CWCO)
• SJW Group (SJW)

Source: Just one word: Water!, WSJ

Disclosure: No Positions