How to Invest in the Best Water Stocks
Investing in water is likely not on your list of areas where you would place your capital. Yet, this natural resource is a necessity required by every human on the planet, which makes it crucial to protect and distribute. Some companies treat and distribute drinking water, and other companies supply these businesses with services or equipment. One or more of these types of companies may provide you with an area where you’d like to invest.
Understanding the Water Industry
In the past, most of the world’s water supply was managed by each country’s government. However, this responsibility has gradually transitioned to the private sector, which has helped provide the funding needed for operations. Depending on the region, there may be a majority of private companies managing the water in that area, or there may be partnerships in place that include both private and public sectors. Each of these regions has different regulatory environments, which is helpful to understand when you are investing in water stocks.
How to Start Investing in Water
Investing in water stocks requires you to perform your due diligence and research each company. Having an investment plan in place is also essential. If you choose to invest in this sector, you will need to decide on the portion of your portfolio you’d like to use for these types of stocks. The major benefit of investing in water utilities is the dividends they pay to shareholders. Owning stocks that pay a steady stream of dividends regularly can help produce income in your portfolio.
Regulated and Unregulated
Privatizing water gives a great deal of power to just a few individual companies. Most are highly regulated, which helps ensure these companies don’t overcharge their customers.. Monitoring is done by enforcing price caps, which can limit the profits each company can make. This is a factor you’ll want to consider when you invest in this sector. In contrast, unregulated companies have zero limitations, which may allow them to generate more profits. While this may sound like a better opportunity, income can be less predictable than regulated companies.
Why Should You Invest in This Sector?
Similar to the energy sector, companies that manage water are usually extremely stable. The water industry doesn’t have a great deal of volatility, which you’ll find in technology sectors. According to the experts at Money Morning, “Water is a precious commodity, and if governments can’t give people access to clean water, they will need to hire corporations to help solve the problem, which is where your investments come in.” This can make investing in these types of businesses ideal for an investor who focuses on the long-term.
If you’re looking to play defense in a portion of your portfolio, choosing this sector may be an excellent place to research and park a part of your funds. You’ll usually find that stocks in this space won’t be affected by economic downturns or upswings. They typically stay relatively stable due to being regulated. However, it is helpful to keep track of regulations as a change could affect income and profits.
Investing in this area may provide you with a stable form of income each year if you are planning on using these types of stocks to produce income in your portfolio. Choosing this option does mean you should monitor the stocks you buy to keep track of regulations.