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Coverage Initiation: The York Water Company
Value Line has initiated coverage of The York Water Company (YORW) in its flagship product, The Value Line Investment Survey. York Water is a water utility that provides service to York, Pennsylvania and environs. As of year-end 2012, the company served nearly 64,000 water and wastewater customers. Its service area has a population of about 189,000 in 47 municipalities in York and Adams Counties. York Water has a little over 100 employees.
York Water is the oldest investor-owned utility in the United States. The company was incorporated in 1816 due to the need to provide a public water supply for use in firefighting. Back then, wooden water mains were in use, but weren’t very reliable. York Water replaced these mains with cast iron pipe in 1840. The company built its first dam in 1913 and completed its second in 1967. This expanded its capacity to over two billion gallons. York Water stock has been traded on NASDAQ since 2001.
The company has paid dividends continuously since its inception 197 years ago. Even in the midst of the Civil War, Confederate occupation of the town of York did not interrupt these payments. Like most utilities, York Water is known for dividends, and its stock is best suited for income-oriented investors. The company offers a direct stock purchase plan (up to $40,000 annually) and a 5% discount on shares reinvested through the dividend reinvestment program. In recent years, annual dividend increases have averaged about 2%. However, although water utility stocks typically have superior dividend yields compared with the market as a whole, they often have lower yields than other utility equities. York Water is financially sound, and has stronger cash flow than many water utilities. In fact, the board of directors has authorized the company to repurchase up to 1.2 million common shares.
York Water expands its customer count as a result of housing starts in its service territory and through acquisitions. Many of these purchases are very small; for instance, in the first quarter of 2013, the company paid $27,000 for the water system of a mobile home park. In addition, the utility files rate cases from time to time to recover capital investment and increases in operating expenses. In late May, York Water asked the Pennsylvania regulators for a rate increase of $7.1 million (16.8%). Still, any increase the company is granted might not take effect until 2014.
Regulatory risk is just one uncertainty that York Water faces. When housing starts in the utility’s service area decline, so does its customer growth rate. Any water company can be hurt by excessive rain, or drought conditions that lead to water conservation measures, but this is especially problematic for York Water because its service area lacks the geographic diversity of a company such as Aqua America (WTR). The utility must also comply with various water-quality regulations. The possibility of rising interest rates is another factor. Finally, investors for whom liquidity is important should note that the stock is thinly traded.
For a more thorough look at York Water’s business prospects, and the particular investment merits of its stock, subscribers should examine our full report in The Value Line Investment Survey.
At the time of this article’s writing, the author had a position in WTR.