A Thirst for Clean Water

by Tony Sagami

About the same time I was traipsing around Singapore last month, around 14,000 of the world’s top business, academic, and government experts from 85 countries gathered in Singapore to learn the newest water-technology developments at the Singapore International Water Week 2010 conference.

The global economy may be filled with uncertainly, but the world’s thirst for water is growing like mad. FACT: A total of $2.8 BILLION worth of water infrastructure deals were concluded at the Singapore conference.

All those billions are being spent for one reason: Clean drinking water is in short supply. It is estimated that the lack of pure water is the single greatest killer in the world: Four children die each minute from illness caused by a lack of drinking water.

The problem is not that the world is running out of water. There is exactly the same amount of water today as there was a million years ago, but a soaring global population and groundwater pollution is creating an acute shortage.

Only 2.5% of the world’s water is fit for human consumption and two-thirds of that is locked away in icecaps and glaciers. This percentage has been fixed since the last ice age.

Water is not like gold or oil where a new discovery will suddenly increase the supply and there is no substitute for water.

Clean drinking water is in short supply, thus a potentially valuable commodity.

According to the International Water Management Institute (IWMI), one-third of the world’s population is short of water. In fact, water is expected to become so scarce in the future that the vice president of the World Bank warned that “the wars of the next century will be about water.”

Yikes!

Clearly, there is some investment opportunity buried in that need for clean drinking water. The easiest way, as usual, is through exchange traded funds. There are four that specialize in water-related stocks.

* First Trust ISE Water Index Fund (FIW) has a 61.9% weighting in industrials; 22.4% in utilities.

* Claymore S&P Global Water Index ETF (CGW) has a 43.9% weighting in industrials; 32.5% in utilities.

* PowerShares Water Resources Portfolio (PHO) is the largest water ETF, with $1.04 billion in assets; 84.8% industrials; 12.3% utilities.

* PowerShares Global Water (PIO) has a 50.5% weighting in industrials; 32.7% weighting in utilities.

All have similar goals, so it pretty much depends on whether you want to invest in the water delivery companies (utilities) themselves or companies that are creating the hardware and technology to clean up the water.

Seven Unsettling Water Factoids:

1. The average American lets eight liters of water go down the sink while brushing their teeth.

2. Americans use 25 times the amount of water on a daily basis than emerging country counterparts.

3. Two-thirds of the world’s fresh water is used to irrigate crops.

4. Americans drench their gardens with seven billion gallons of water a day.

5. 80% of China’s rivers are too polluted to support fish life.

6. 1.1 billion people globally have no access to clean water.

7. China has 21% of the world’s population, but only 7% of the water.

If you’re more of an individual stock investor, you should take a look at Singapore-based Hyflux, one of the most exciting (but high-risk) water companies that I’ve found. Hyflux has developed advanced membrane technology that has modernized the water purification industry and is recognized as one of the world’s leading water treatment companies with operations in Singapore, China, India, and Dubai.

Hyflux was the first water treatment company to be listed on the Singapore stock exchange in 2001 and was added to the Straits Times Index — the Singapore equivalent of the Dow Jones — in March of 2005.

Hyflux’s secret weapon is its revolutionary seawater desalination technology. Desalination is the process that removes salt, minerals, and impurities from seawater to produce potable drinking water.

Hyflux’s patented reverse osmosis system uses permeable membranes to filter out dissolved material or fine solids.

Hyflux’s SingSpring desalination plant is Singapore’s first seawater desalination plant and delivers 10% of Singapore’s water needs. The plant produces 136,380 meters of clean drinking water a day and was recently awarded the Desalination Plant of the Year by Global Water Intelligence for its contribution to the international desalination industry.

Water purification and treatment facilities are the wave of the future.

In fact, the Singapore government is so enamored with the SingSpring plant that its government investment arm, Temasek Holdings, recently purchased a 50% stake in it. That tells you volumes about how central desalinization is to the future of Singapore.

Hyflux isn’t the only company in Singapore working on new water purification technologies. Singapore is already home to more than 50 water-engineering companies with an emphasis on innovation, research and development. They include GE, Siemens and Black & Veatch Corp. of the U.S.; Delft Hydraulics of the Netherlands; and Nitto Denko of Japan.

At least as important, Singapore has two world-class research universities and 12 research institutes dedicated to water engineering, employing hundreds of scientists.

It also touts its strategic location in Asia where India, China and Vietnam invest heavily. “A lack of clean water and the destruction of the environment are acute problems in Asia, a region home to almost three billion people,” according to Singapore’s Economic Development Board. “This presents vast opportunities.”

Hyflux does trade on the over-the-counter U.S. pink sheets market under the ticker HYFXF.PK and has very thin trading volume, but is actively traded on the Singapore stock exchange as 600.SI.

Don’t rush out and buy Hyflux tomorrow. The desalinization opportunity is a long, multi-decade story, so you will have plenty of time to wait for it to go on sale.

But make no mistake, water is going to be one of the most powerful and most lucrative investment trends you will see in your lifetime and Asian water companies, like Hyflux, should be some of the biggest winners.

Best wishes,

Tony

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This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.

From time to time I publish articles (with permission) of interest to Seniors from interesting newsletters I receive. This is a great article by Sean Brodrick who publishes the Uncommon Wisdom newsletter

Three Dividend Stealth Stocks
by Sean Brodrick

If you’re like me, you’re getting more and more worried about where the economy and the stock market might go next. One consolation is investing in stocks that pay nice dividends. Why? I’ll give you five powerful reasons …

1. Dividend stocks pay you. So if you’re waiting for the market to find its feet and go up again, it’s nice to be paid to wait. Dividends cushion losses during bear markets — potentially providing a source of revenue during bad times — and they add to returns when stocks go up again.

2. Dividends don’t lie. Wall Street can lie about many things — just look at the latest headlines about the sleazy shenanigans of the bankster crowd. But a company can’t fake a dividend. A company also can’t fake a record of dividend growth. So, dividends are Wall Street’s lie detectors.

3. Dividends are where the money is. Over the past 80 years, stocks have returned almost 10% annually. Here’s the interesting part: Dividends accounted for approximately 40% of average annual returns.

4. Dividends beat inflation. Over that same 80-year time frame, inflation has averaged 3%. Dividend-paying stocks provide a nice inflation hedge since their revenues and net income should go up with overall prices.

5. Dividends can outperform in any kind of markets. Look at this data from Ned Davis Research, which shows what would happen to $100 invested in 1972 in a range of dividend payers, dividend growers, and non-dividend paying stocks in the S&P 500 index …

The best performers of all were companies GROWING their dividends. They turned $100 into $2,945 over the length of the study, while an investment in non-dividend payers turned into just $165. Still, the Ned Davis study also shows you have to be careful with dividends. An investment in companies that cut dividends ended up losing money.

These are all good reasons to invest in the right dividend-paying stocks — the kind of stocks we target in Crisis Profit Hunter. My Crisis Profit Hunter picks tend to be in natural resources, and they’re doing well. Oil prices are rising. China just passed the U.S. as the world’s biggest energy consumer, so the upward trend in energy prices should continue.

Today, I’m going to tell you about three stocks that should be on every dividend investor’s watch-list. I’ve cast my net wide to find three picks that are “stealthy” dividend plays — providing value and opportunity that is hidden at first glance.

Pick #1: The Dividend Doubler

Walgreen Co (WAG) is the nation’s largest drugstore chain, with more than 6,900 drugstores in all 50 states. It only has a dividend of 2.4% — so why would an investor want to pick it up for its dividend? Well, despite the low yield, Walgreen has a lot going for it:

The company has paid dividends for more than 76 years and consistently increased payments to common shareholders every year for 35 years.

On July 14, the company raised distributions by 27.3% (to 17.50 cents per share). The dividend is payable September 11 to shareholders of record August 19.

Now here’s something really interesting. The company has also grown their dividend at a compound rate of 24.3% over the past six years. That means it is doubling its dividend every three years. Looking back at historical data to 1972, Walgreen has actually managed to double its dividend payment every six years on average. So, the pace of its dividend rises is increasing.

Not everything is rosy for this stock. Over the past 10 years, Walgreen’s share price has gone down by 1%. But the fact that it is a dividend grower, it’s in a business that should be recession proof, and it is trading at just 14.3 times trailing earnings and 12 times forward earnings makes it worth considering.

Pick #2: Betting on Overseas Growth

Air Products and Chemicals (APD) is a diversified company that provides industrial gasses, medical and specialty gases, chemicals, electronics and services to a customer base worldwide. It dishes up a dividend yield of only 2.8%. So why should it be on your radar? This company is making huge inroads into emerging markets, most recently India and the Middle East. If those regions of the world continue to grow while the U.S. stagnates — a definite possibility for the rest of 2010 and potentially 2011 — Air Products will deliver both price appreciation and dividend growth.

The market for industrial gas increases at double the rate of the global economy. The International Monetary Fund recently raised its forecast for global economic growth to 4.6%.

Air Products’ dividend payments have increased by an average of 10.3% since 2000. A 10% growth in dividends translates to the dividend doubling every seven years. The company hiked its dividend by 8.9% in February, for the 28th year in a row.

Going forward, the company is expected to increase its dividend by 7.9% over the next three years.

The stock recently traded at 17.3 times trailing earnings and 12.6 times forward earnings.

Pick #3: Rising Dividend AND a Potential Boost from Energy Prices

Crude oil grabs all the headlines, so many people don’t notice that natural gas is putting in a bottom, too. That should be a big boost for ONEOK (OKE), an integrated natural gas company that also has an energy marketing and trading business. The company distributes gas all over the Kansas and Oklahoma, as well as the Austin and El Paso areas of Texas. It also owns 42% of ONEOK Partners, a natural gas gathering, processing, storage and transportation company. And OKE recently paid a 4% dividend yield.

This month, the company raised its quarterly dividend by 2 cents to 46 cents a share. The dividend is payable August 13 to shareholders of record at the close of business July 30.

ONEOK’s dividend is expected to keep growing by 8.55% over the next three years.

Rising natural gas prices should also boost the company’s share price.

ONEOK recently traded at 14.4 times trailing earnings and 14.3 times forward earnings.

These are just three examples of the kind of stocks that should be on your dividend watch-list. Their dividends aren’t huge, but they all have plenty of potential — immune to a recession while at the same time growing dividends rapidly (Walgreen) or leveraged to the booming overseas economies (Air Products) or leveraged to energy prices (ONEOK). Stealthy stocks like this can fly under the radar, and wise investors will pick them up for potential long-term price appreciation.

Yours for trading profits,
Sean

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This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.

The risk of a double-dip recession is no longer in doubt.  It is looking more and more like various government stimulus programs, free money from the Fed and housing incentives caused all of the recent gains.  Those have now expired and we are seeing the real economy. Consider:

• Despite low record interest rates, mortgage applications have now fallen to 1996 levels
• Federal Reserve rates are between 0% and 0.25%. There is no more room to lower rates
• Job growth has stalled. The Bureau of Labor Statistics reports that 15 million unemployed people are competing for 3.2 million job openings — a ratio of unemployed to jobs of nearly 5 to 1
• Wholesale Purchasing has stalled
• Consumer confidence has tanked
• Total inflation is 0% and core inflation (less food and gasoline) is at 0.2%
• Retail sales are falling.  US savings rates are at a 20-year high. People are repairing their personal balance sheets by paying off debts and cutting spending.

So where is one to invest?

The two areas that look good on a worldwide basis are energy and materials.  Hot economies such as India, China, Russia and Brazil and moderate growth economies in Eastern Europe, Australia and Canada are growing enough to increase the worldwide demand for oil and critical materials such as aluminum, copper, iron ore and so on.

Lets look at a few opportunities:

Energy

Individual stocks in the energy patch can still be risky –i.e. BP.  One of the investments I like are the multiple limited partnerships (MLPs) in pipeline companies. According to research from Morgan Keegan, MLPs have delivered compound annual returns of 18.5% over the last 10 years. That’s about 6% more than income trusts and 7% better than utilities. They pay large and steady dividends and make money no matter what the price of oil is.  My favorites are MarkWest Energy Partners (MWE) that now pays a 7.5% yield and DCP Midstream Partners (DPM) at 7.1% yield.

As for the overall energy play, I like the ETFs Energy Select SPDR (XLE), which tracks a basket of leading energy stocks and the United States Oil Fund (USO).

Materials

For materials I like the Peru Country fund. Peru is a major producer of copper, gold, silver and even lithium used in all the new electric car and computer batteries. And the country of Peru is enjoying excellent economic growth.  the Peru country fund (EPU) tends to tank whenever the US market tanks, but then it detaches itself and starts acting like a growth fund that it is. It can be a little volatile, but should do well in the long term.

Gold Investing

The other area I am in is Gold.  Gold has consolidated a bit to the 1160 range down from a recent high of 1266. It could consolidate a little more to 1140 or so. This is typical – Gold always retreats and tests support after a large sudden run up. And the summer is seasonally not strong for gold –sometimes called the summer goldrums by experienced investors.  But even Forbes Magazine who very conservative is predicting gold prices of $1320 by the Fall while most professional gold investors are forecasting a run up to $1390 before consolidating again with an eventual target of $1500 by the end of the year.  the State of Texas Teacher’s retirement fund just purchased $500 million dollars of gold -almost three percent of their total holdings.

My favorite gold plays are the physical gold ETF with the symbol GLD and the basket of gold mining stocks, symbol GTX.  If you want a little risk, I have done really well with a junior gold miner New Gold.  It has been as high as $7 but has now settled back to the $4.50 to $5.00 range where I added to my original position of 500 shares bought at $3.30.

Caution

As I have pointed out in previous posts – I am not a professional investor or investment advisor, so do your own research –but I just rebalanced my portfolio and put a lot of the stocks and funds mentioned here today into play.

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