Insights on Water and Big Brazilian Events

Earlier this week, I shared some of the insights and data points I gleaned from hosting the first of two public company panels at the Las Vegas MoneyShow. Yesterday, I hosted the second one. And while it was fun to meet up with fellow Real Money Pro contributors Boisterous Bob Lang and Terrific Toni Turner, I wanted to make sure I shared the insights obtained from that second panel. The four companies on the dais with me were Kimco Realty Corp. (KIM), a shopping center real estate investment trust company that pays a quarterly dividend of $0.21 per share, which equates to a current dividend yield of 3.4%. Another solid dividend payer and water utility company -- American Water Works (AWK) -- was also on the panel as was Brazilian electricity company, Companhia Energetica Minas Gerais, or CEMIG (CIG), and South African-based energy and chemical company Sasol Limited (SSL). The majority of attendee interest was skewed toward Kimco and American Water Works. But CEMIG reminded us that Brazil will have substantial infrastructure growth ahead of the FIFA World Cup in 2014 and the Summer Olympics in 2016. Sasol is only now building its exposure in the U.S. with a few projects in Louisiana. But the company has been at the forefront of using natural gas as a fuel source in South Africa. That makes Sasol a company to keep an eye on as the conversation over using natural gas as a fuel source hear in the U.S. heats up. Kimco Realty Corp. management discussed the nature of its more than 900 shopping centers that span 44 U.S. states as well as Canada, Mexico and Latin America. The two big questions centered on the dividend, which is back on the rise, and the tenant composition. It is interesting that Kimco's exposure to the Internet sensitive areas -- books, consumer electronics, office supplies and other -- accounts for just 8% of the company's portfolio. It has modest exposure to Best Buy (BBY), Barnes & Noble (BKS), Office Depot (ODP) and Staples (SPLS). Instead, some of its key customers include Home Depot (HD), Bed Bath & Beyond (BBBY), T.J. Max (TJX), Wal-Mart (WMT) and Target (TGT). As Kimco sees it, roughly 92% of its tenant composition is Internet resistant. What surprised me the most was that despite all the talk about certain retailers like Best Buy planning to downsize their big box footprints, Kimco's big box utilization rate stands at 97%. That means any efforts by companies like Best Buy or Barnes & Noble to downsize would be welcome and filled rather quickly. From an investor perspective, KIM shares have had a strong run -- up nearly 28% year to date -- and on a technical basis they have entered overbought territory. While I like the story, it's hard to get behind committing fresh capital at current levels. This is a company that Real Money Pro subscribers should be looking at on a pullback. Shares of American Water Works have also had a solid move year-to-date, up more than 15%. I like the nature of the company's business -- 90% of its revenues come from regulated water utilities in 16 states. If forecasts for a hot, dry summer come to fruition, it would drive incremental demand for water; that's a boon to American Water Works and its shareholders. The steady nature of the business, coupled with rate increases tied to capital spending to update and overhaul its water infrastructure, have allowed American Water Works to steadily increase its quarterly dividend. It is currently $0.25 per share, up from $0.20 per share in 2008. Management shared that American Water Works spends between $800 million to $1 billion per year updated its water infrastructure -- and it's not the only one, which confirms my thesis behind recommending shares of Xylem (XYL). Even though XYL shares are up 18% before dividends since that recommendation, I continue to like the long-term outlook given water infrastructure spending.

Insights on Water and Big Brazilian Events

If forecasts for a hot, dry summer develop, it would drive incremental demand for water.

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