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In this article, I'll be looking at some water stocks with dividends. These stocks don't have the highest dividends in the market, but they offer among the highest payouts in the sector.

Aside from water stocks' dividends, however, there are several reasons to consider investing in the sector. To begin with, water is a commodity that will always be needed. This is particularly true because water crises are emerging in several countries, including the United States. In several Western states, a multi-year drought may necessitate government restricting water use by up to 25%.

And like many commodity stocks, a key reason to invest in water stocks is their reliable dividends. In volatile markets, it's always a good idea to invest in companies that pay you to own their stocks.

And then, there's the current "risk-off" environment. In light of all of these factors, you can see why water stocks with dividends are in a sweet spot between growth and value. Many of these stocks are outperforming the market simply because of the laws of supply and demand.

So if you're looking for some income during your retirement or you just want to find some stocks to combat the market's current volatility, here are seven water stocks that are worth a look.

American Water Works (AWK)

When investors look for water stocks with dividends, utilities are a good place to start. American Water Works (NYSE:AWK) is one of the leading water utilities in the country. The company's current dividend yield is 1.77%.That's not particularly impressive, but it's good.

The company currently pays its stock's owners $2.62 per share on an annual basis. That's 44% higher than the sector average.

And when it comes to the balance sheet, there's a lot to like as well. The company has a profit margin of 3.99% which is almost twice the sector's average. And with a price–earnings (P/E) ratio of just over 20 times, the valuation of AWK stock is becoming more attractive.

Essential Utilities (WTRG)

The next company on my list is not a pure-play water utility. That's because, in addition to the water services that it provides through municipalities and other parties, Essential Utilities (NYSE:WTRG) also has exposure to the natural gas sector. That adds some volatility to WTRG stock, but it's still one of the best names for income-oriented investors.

The company pays $1.15 per share of dividends annually. That currently equates to a 2.5% dividend yield. Indicating that the company's dividend is safe, WTRG is in the exclusive Dividend Aristocrat club, as  it has increased its dividend for 32 consecutive years.

And at a time when investors are looking for growth wherever they can get it, Essential Utilities is a solid choice. The company's balance sheet is sound, and it continues to deliver revenue and earnings growth.

In fact, over the next five years, Essential Utilities is projecting high single-digit-percentage growth in both metrics. That's a combination that should allow Essential Utilities to continue increasing its dividend over time.

American States Water Company (AWR)

Another utility company on this list of water stocks with the highest dividends is American States Water Company (NYSE:AWR). About 25% of its customer base is in California. Specifically, the company serves over 250,000 customers in the Golden State, making it one of the state's largest water utility companies.

AWR stock has advanced at an average annual rate of approximately 15% over the last five years. And as of the market close on September 15, the stock was up 21% since bottoming in June.

The company is projecting single-digit-percentage revenue and earnings growth over the next five years. That should be enough to satisfy dividend investors.

American States Water is a Dividend King that has increased its payout for the last 62 consecutive years. And there's little reason to believe that the streak will be interrupted.

Mueller Industries (MLI)

If investing in a company that is undervalued but growing appeals to you, you'll love my next stock. Mueller Industries (NASDAQ:MLI) is the first water stock on this list that is not a water utility. However, the company is vital to water infrastructure. The company makes pipes, valves, and fittings for commercial and residential applications.

In its most recent reported quarter, Mueller generated record revenue of $1.15 billion. And the company reported a healthy backlog. Meanwhile, its balance sheet is more than fine, as it has zero net debt and continues to increase its free cash flow.

Also making the shares attractive is that investors can still buy MLI stock at an attractive P/E ratio of just over five times earnings. Plus, the company pays an annual dividend of $1.00 and has increased its dividend by approximately 9% annually over the last three years.

Gorman-Rupp (GRC)

Like many companies in this sector, Gorman-Rupp (NYSE:GRC) is an established name. The company has been making pumps and pumping systems for its customers since 1933. And today, the firm has a global presence as it generates about one-third of its revenue outside the United States.

About 58% of the company's revenue comes from water and water-related products. Investors can count on the specialized firm to generate steady revenue and earnings . Throughout its history, Gorman-Rupp has grown through acquisition, but that hasn't stopped it from issuing dividends for the last 72 years.

That payout by itself would make the stock worth including on this list of water stocks with the highest dividends. However, for the last 49 years, Gorman-Rupp has increased its dividend, putting it on the cusp of being a Payout King.

A.O. Smith (AOS)

A.O. Smith (NYSE:AOS) is one of the country's leading manufacturers of boilers, water treatment products and water heaters. In June 2022, InvestorPlace columnist Will Ashworth gave AOS stock a ringing endorsement, calling it one of his favorite stocks to buy.

At that time, the company had just acquired Atlantic Filter Corporation. The water treatment company was A.O. Smith's fifth such acquisition since 2016. Water treatment is becoming a key niche, and A.O. Smith appears to be committed to grabbing a substantial share of the market.

AOS  has some work to do. That may be why the company is looking to grow its water heater business in China and India.  In the meantime, investors can enjoy the company's dividend which pays out $1.12 on an annual basis. That works out to a yield of 2.17%.

Xylem (XYL)

The last stock on this list of water stocks with the highest dividends is a company that's using technology to address the emerging issue of water scarcity. Xylem (NYSE:XYL) claims that within the next three years, 1.8 billion people will be living in areas without sufficient water.

To that end, the company delivers hundreds of innovative and smart technology solutions. The company specializes in fixing leaky pipes.

While that may sound unimportant, it's becoming  an increasingly prevalent problem because of our country's aging water infrastructure. In fact, the average water main in the U. S. hasn't been replaced since the 1970s.

XYL stock is down 21% for the year, but it's been rallying since June. As of September 15, 2022 XYL has posted a 29% gain.

The company's revenue should remain solid as the nation upgrades its aging infrastructure. Consequently expect Xylem's dividend to continue to increase.  It currently pays the owners of XYL $1.20 annually, and the payout has been growing at an average rate of 10% over the last three years.

On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. 

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