The company acquired Connecticut Water (also a Clean Yield holding) and The Maine Water Company in 2019, which was a major step in its geographic diversification. SJW more recently has been acquiring small privately-owned water utilities in Texas to benefit from the state’s rapid economic growth.
The 2019 acquisition of Connecticut Water was expensive and disruptive to SJW, as many large acquisitions are. As a result, profitability— and SJW’s stock price—have been depressed relative to water utility peers. We expect this to change for the better over the next several years as the integration progresses.
From an environmental perspective, SJW operates at the nexus of water and energy. Providing sustainable water tends to require significant energy use. SJW acknowledges this tension directly and is committed to providing water service to customers that is both sustainable and drought-resistant while also reducing its carbon footprint. Currently, the company sources nearly half of its electricity from renewable sources and is working towards reducing emissions in alignment with the goals of the Paris Climate Agreement while also increasing its water recycling programs. It is also rolling out use of real-time water monitoring systems to help identify and address leaks and enable consumers to reduce water use.
In recent years, the company has strengthened its social programs with the rollout of a new, organization-wide human rights policy and related training. It has formed a national Diversity, Equity and Inclusion (DEI) Council, which is tasked with developing the company’s DEI strategy, and is working to prioritize enhanced supplier diversity. Safety is a key risk for any water utility and while SJW has had incidents, the company is transparent about its safety performance and efforts to train employees and identify and rectify safety hazards before they become an issue. The company has been recognized as one of only a few companies in the Russell 3000 Index with a gender-balanced board of directors.
Water quality is a particularly important issue for water utilities. SJW has identified the presence of PFAS as a significant risk and is developing cost-effective solutions to remove it from water systems. It is also proactively working with customers to remove lead pipes from its systems.
SJW provides us with an attractive opportunity to invest in a stable economic sector at a time of extraordinary volatility and stock market risk. SJW seems to be undervalued compared to the water sector and to the overall stock market. It also has a dividend yield of 2.2%.