Scott Kaufman of Dividend Kings has reiterated a Buy rating on American Water Works, citing the company’s consistent earnings per share (EPS) growth track record and strong financial stability. Over the past five years, AWK has delivered compounded annual EPS growth of approximately 8%, driven by steady rate base expansion and disciplined cost management. Kaufman highlights that AWK’s investment-grade credit rating and low payout ratio—recently below 60%—provide ample headroom for continued dividend increases, underpinning long-term investor confidence.

American Water Works’ proposed merger with Essential Utilities (formerly WTRG) is expected to bolster the combined entity’s scale and geographic diversification. The transaction would add approximately 2.6 million regulated customer connections across nine states to AWK’s existing footprint, increasing total customer count by nearly 19%. Management projects $50 million in annual run-rate cost synergies by the third year post-close, primarily through consolidated procurement and shared operational platforms, while preserving AWK’s targeted 7%–9% annual EPS growth trajectory.

At its current valuation, AWK shares trade at a roughly 10% discount to the analyst’s calculated fair value, based on a discounted cash flow model assuming a 6.5% weighted average cost of capital and a terminal growth rate of 2.5%. If AWK meets consensus EPS growth forecasts of 7%–9% per annum and maintains its dividend policy, total shareholder returns—including dividends—could reach 10%–11% annually over the next five years. This projection factors in ongoing capital investments of $1.8 billion per year to upgrade and expand the regulated asset base.