This week, three of the portfolio holdings ranked in the Top 10: BKH, FMCB, and PPG.
| Ticker | Account Value |
| BKH | 2,664.24 |
| FMCB | 2,925.12 |
| PPG | 2,554.17 |
But guess what? None of the above matters because it is time to add a new position to the Portfolio for the Ages!
First, let’s not get excited that MMM has dropped out of the Top 10 for perhaps the first time ever. It is still highly ranked at #17, and the drop has nothing to do with an increase in share price, but everything to do with a reduction in their fair value estimate, the result of spinning off SOLV and seeing their earnings estimate taking a disproportionate hit.
Second, though the lowest amount belongs to PPG, there is an imbalance in the portfolio from a stock weight perspective. The 15 most heavily weighted stocks are too great a proportion of the 16-stock portfolio. This is a circuitous way of saying LEG has performed so poorly, the position has become too small. LEG is the only stock eligible for additional investment at this time, but it isn’t in the Top 10. In fact, it is trading slightly above a significantly reduced fair value estimate; and only stocks trading below fair value make it into the ranking from which the Top 10 is skimmed.
I am not interested in letting go of LEG as there is potential for significant price improvement if their restructuring takes hold. There are those who believe the dividend is at risk, that a cut or suspension is imminent. I am not one of those people. LEG is a Dividend King and there have been times in the visible past where free cash flow couldn’t support the dividend and yet, the annual increase streak persisted. And cash flow is currently still sufficient to support the current dividend. If LEG does reduce or suspend the dividend, it can only be to spite me personally.
This leaves me with investing in the highest-ranking stock in the Top 10 not currently in the portfolio.
SJW Group
There are no sector imbalances at this time, and investing in a utility stock doesn’t create one either. SJW Group [SJW] ranked #1 this week. Here is the profile from Yahoo! Finance:
SJW Group, through its subsidiaries, provides water utility and other related services in the United States. It operates in Water Utility Services and Real Estate Services segments. The company engages in the production, purchase, storage, purification, distribution, wholesale, and retail sale of water and wastewater services; and supplies groundwater from wells, surface water from watershed run-off and diversion, reclaimed water, and imported water purchased from the Santa Clara Valley Water District. It also offers non-tariffed services, including water system operations, maintenance agreements, and antenna site leases; contracted services, sewer operations, and other water related services to water utilities; and a Linebacker protection plan for public drinking water customers in Connecticut and Maine. In addition, the company provides water service to approximately 232,400 connections that serve approximately one million people residing in portions of the cities of San Jose and Cupertino and in the cities of Campbell, Monte Sereno, Saratoga, and the Town of Los Gatos; adjacent unincorporated territories in the County of Santa Clara in the State of California; water service to approximately 141,000 service connections, which serve approximately 461,000 people in 81 municipalities with a service area of approximately 272 square miles in Connecticut and Maine and approximately 3,000 wastewater connections in Southbury, Connecticut; approximately 28,000 service connections that serve approximately 83,000 people in a service area comprising approximately 271 square miles in the region between San Antonio and Austin, Texas; and approximately 950 wastewater connections. Further, it owns undeveloped land in California and Tennessee; commercial and warehouse properties in Tennessee; and commercial properties and parcels of land in Connecticut. The company was formerly known as SJW Corp. and changed its name to SJW Group in November 2016. SJW Group was incorporated in 1985 and is headquartered in San Jose, California.
Okay, I sprung that uninspired logo on you and then hit you with a profile that wasn’t exactly riveting. So SJW isn’t as exciting as Nvidia, but what is exciting, is adding a water utility to the portfolio.
Allow me to add just a little color to the lengthy profile. Let’s start with the name. It is not too difficult to imagine that the ‘SJW’ in SJW Group stands for ‘San Jose Water’ as in the San Jose Water Company. This component of the larger SJW Group has been around since 1866. Another nugget: The Maine Water Company is another component of SJW Group that has been in business since 1880. Given such a long history providing the most essential of products and services, it is not surprising to learn that dividends have been paid for 80 years and the annual amount has been increased in each of the last 56 years.
The Details
Data as of 2024-04-13
| Name | SJW Group |
| Ticker | SJW |
| Website | Investor Relations |
| Sector | Utilities |
| Dividend Streak | 56 years |
| Last Price | $52.82 |
| Div Amt (quarterly) | $0.40 |
| Ann Dividend | $1.60 |
| Last Ann Div Inc | 5.5% |
| Dividend Yield | 3.0% |
| Payout Ratio (ttm) | 56.7% |
| Beta (5-yr, mon) | 0.60 |
| P/E Ratio (ttm) | 19.71 |
| Margin of Safety | 34.4% |
Reasons to Invest
First, the dividend yield of 3% is rarely seen for this stock; it has been 10 years since it reached this level. Further, it has not significantly surpassed this level in 20 years.
Second, SJW has had near flat earnings per share [EPS] growth over the last 10 years. However, from 2019 through 2023, the EPS has grown from $1.35 to $2.68 or 18.7% annually. The company provided EPS guidance of $2.68 to $2.78 for 2024. Water utilities notoriously trade at a premium, but right now with the S&P 500 trading at trailing P/E Ratio of 23.55 and SJW under 20.00, it seems that it has become oversold. The stock’s all-time high of $83.88 reached on 2022-12-28 was perhaps unjustified, but a 37% drop over the following 15 months seems even more unjustified – the fair value is likely north of $70.
Establishing a position in SJW for approximately $1,000 means purchasing 19 shares on Monday.