Utilities such as water companies are highly regulated industries. This often keeps growth-oriented investors looking for other options. But in the past few years, several catalysts have made water infrastructure stocks attractive growth targets.
The long-running case began at the beginning of this decade. In its 2025 infrastructure report card, the American Society of Civil Engineers gave the United States water infrastructure grades from C- to D. Improvements began with the passage of the Infrastructure Investment and Jobs Act (IIJA) in 2021, which allocated $50 billion over five years for drinking water and wastewater-related infrastructure.
That use ends. However, on March 17, 2026, the US Department of the Interior announced an additional $889 million in funding for critical water infrastructure projects in six Western states, saying the funding was made possible by the One Big Beautiful Bill.
Industrial consolidation is reshaping the water services sector. Many small utilities do not have the capital needed to upgrade, driving private investment in water utilities and wastewater systems. With more than 50,000 public water systems and 16,000 wastewater treatment plants, this trend has room to continue.
A common catalyst comes from a regulated rate structure that allows water utilities to conduct their business without competition. Companies are also getting a boost from the interest rate policy that has been active since the fall of 2024.
American Water Works: Rate-Base Growth to a Consolidation Theme
American Water Works Today
American Water Works
- 52 week interval
- $121.28
▼
$147.87
- Dividend Yield
- 2.65%
- The P/E ratio
- 22.17
- Target Value
- $139.11
American Water Works NYSE: AWK is one of the largest publicly traded water utility companies in the United States.
This company is a good example of a company that benefits from the many things that build water infrastructure.
First, the business controlled by American Water Works has a base rate that is growing at a compound annual growth rate (CAGR), between 6% and 8%. That means that government-sanctioned capital investment encourages increased revenue, which flows almost directly into profits. The company is guiding for full-year 2026 earnings per share (EPS) of $6.02 to $6.12, a 5% year-over-year (YOY) gain on the low end.
American Water Works is an example of an industry consolidation, with its planned $19.1 billion acquisition of Essential Utilities expected to close in 2027.
That growth is not yet evident in AWK, which has fallen more than 12% in the past 12 months. But analysts are predicting earnings growth of 9.8%.
While investors wait for that growth, they will collect a dividend that has increased for 18 consecutive years and has been growing at an annual average rate of more than 8% for the past five years.
Key Resources: Compounding Play with a 33-year Dividend Streak
Essential Resources Today
Important Resources
- 52 week interval
- $36.32
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$42.37
- Dividend Yield
- 3.66%
- The P/E ratio
- 19.00
- Target Value
- $42.40
As mentioned earlier, Essential Resources NYSE: WTRG is being purchased by American Water Works next year, creating a company that will serve more than 20 million people in 17 states at a combined value of $34 billion. The merger received Kentucky regulatory approval in April 2026, and shareholder votes for both companies overwhelmingly passed in February.
However, while investors wait for that deal to close, Essential Utilities is still operating on its own and doing it well. Q1 2026 revenue rose 10% YOY, and the company confirmed its full-year outlook.
Another reason to pay attention is the dividend. Essential Utilities has increased its payout for the 32nd year in a row. That's a chain that has survived recessions, valuation cycles, and now a pending corporate merger. With a current yield of about 3.5% and a post-merger EPS growth target of 7% to 9% per year, Essential Utilities offers investors the rare combination of a company with a defined catalyst up front and income while you wait.
Xylem: The Tech Angle on Water Modernization
Xylem Today
- 52 week interval
- $113.45
▼
$154.27
- Dividend Yield
- 1.51%
- The P/E ratio
- 28.30
- Target Value
- $152.77
Xylem NYSE: XYL it is not a water resource in the traditional sense. Instead, the company builds tools that keep water utilities running.
Xylem makes pumps, treatment systems, smart meters, and data analytics platforms that utilities use to move, monitor, and clean water. That sets it apart from regulated monopolies. It increases when the use of water infrastructure increases, without decreasing the rate.
The numbers back that up. The company posted record full-year 2025 revenue of $9 billion, with adjusted EPS up 19% YOY. For Q1 2026, EPS rose another 14% on a reported basis, and management is guiding 2026 adjusted EPS of $5.35 to $5.60, with EBITDA margins growing by up to 110 basis points.
XYL has retreated nearly 20% from its highs, largely on a cautious outlook for earnings growth and Asia-Pacific headwinds. But for investors seeking exposure to structured water infrastructure without owning the utility, XYL's drawdown appears to offer an attractive entry point.
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