7 Best Water Stocks and ETFs to Buy

Every person, animal, plant and industry on the planet needs water, but only a very small fraction of the resource is fresh and drinkable, even though water covers more than 70% of the earth’s surface.

If you look at fresh, potable water as a commodity, its life-sustaining properties mean there will always be demand for it. At the same time that climate change is making droughts worse, the global population is increasing and data centers are increasing demand for water.

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“I am bullish on the water industry long term, due to the need for clean water as a result of increasing global population and industrialization, as well as climate change problems and regulations,” says Jon Wolfenbarger, CEO at BullAndBearProfits.com. “In addition, the need to upgrade water infrastructure with new technological innovations provides significant growth opportunities over time.”

Aging infrastructure poses a challenge to meeting demand for water even as the need to deal with PFAS, or “forever chemicals,” in the water system gains attention.

Peter J. Klein, chief investment officer at Aline Wealth, points to last year’s first national drinking water standard to limit PFAS chemicals.

The spending needed for replacing or repairing infrastructure offers “a strong tailwind to many companies in the remediation, infrastructure and testing industries,” Klein says.

With that backdrop, people who want to tap into water as an investment theme can consider the following stocks and funds:

Stock/ETF Focus Area
American Water Works Co. Inc. (ticker: AWK) Water and wastewater utility
Essential Utilities Inc. (WTRG) Water, wastewater and natural gas utility
Badger Meter Inc. (BMI) Smart meters and data analytics
Xylem Inc. (XYL) Water technology
Invesco Water Resources ETF (PHO) Water conservation, purification
First Trust Water ETF (FIW) Water distribution, infrastructure, purification
Invesco S&P Global Water Index ETF (CGW) Water utilities and suppliers

American Water Works Co. Inc. (AWK)

A logical place to begin a list of water investments is with utilities. These companies offer a measure of diversification to a portfolio because people and businesses will need water regardless of economic conditions.

While it’s unlikely that utilities will outperform growth stocks when the market is doing well, you’ll be glad to have utilities during market downturns when riskier stocks are out of favor.

“Water utilities will perform more defensively on a relative basis and still face headwinds due to sustained high interest rates,” says Chris Ottinger, investment analyst at Tortoise Capital. “Yet, continued secular trends of repair and replace of aging pipeline infrastructure should drive positive growth in earnings.” American Water Works is one of the largest utilities of any type and is bigger than some electricity providers. As the largest listed water and wastewater utility in the U.S., the company provides services to residences, public buildings, and commercial and industrial businesses. It also has long-term military contracts that provide an extra layer of stability.

“AWK’s size and capital market access allows the company to conduct consolidation of water and wastewater utilities, allowing for better economies of scale in a fragmented industry,” Ottinger says.

Essential Utilities Inc. (WTRG)

Essential Utilities operates similar water and wastewater infrastructure to American Water Works but also provides natural gas-related services to customers in Pennsylvania and Kentucky.

This layer of diversification dilutes what would otherwise be a direct play on water, but that may be appealing to some investors who want to hedge their bets a bit with natural gas.

Wolfenbarger likes the stock, pointing to its defensive nature, stable sales and earnings growth, spending plans to improve infrastructure and service reliability, strong track record of dividend increases, and solid profitability and operating profit margin, among other metrics.

Badger Meter Inc. (BMI)

Companies that supply utilities also offer investors exposure to the water theme.

“Water industrials should benefit from positive spending trends by water utilities on water smart meters and treatment technologies,” Ottinger says. “Companies like BMI and (Xylem Inc.) are providing smart meters and software suites to water utilities, with the end goal of reducing water loss through leak detection and software for predictive maintenance.”

Badger Meter makes metering products that use flow measurement and control technologies for the municipal, commercial and industrial sectors. Its portfolio of products includes a mix of hardware, communications, data visualization and analytics software, and support.

“BMI’s competitive advantages are its innovative high-quality durable products, including smart metering and data communication technologies,” Wolfenbarger says.

Xylem Inc. (XYL)

Named for the plant tissue that transports water and nutrients up from the soil, this water technology company has utility, industrial, commercial and residential customers around the world.

“Xylem is an industry leader of water technology solutions, with products and offerings spanning the entire water cycle,” Ottinger says. “The company has a successful and long-standing track record of identifying and adding new technologies to its product offerings through M&A.”

The company’s growth prospects are tied to utilities adopting technology for the management of water supply, reduction of water loss and advanced water treatment methods for emerging contaminants, Ottinger says.

“Xylem is at the forefront of inclusion of emerging technologies to solve the water crisis, including use of AI and machine learning to help utilities improve their operating efficiency,” he says.

[READ: 6 Best Green Hydrogen Stocks and ETFs to Buy Now]

Invesco Water Resources ETF (PHO)

Other companies besides water utilities are working on technology for water conservation and purification. To help capture this value, Wall Street has created funds that can broaden investor reach and reduce risk.

Investors who want to go the exchange-traded fund, or ETF, route, either in lieu of individual stocks or in addition to them, can consider this fund. It invests in companies that create products that conserve and purify water for homes, businesses and industries.

Wolfenbarger points to this ETF’s liquidity, with $2.2 billion in assets under management, a healthy three-year dividend growth rate and strong five-year price performance.

PHO has an expense ratio of 0.59%, or $59 in annual fees on a $10,000 investment.

First Trust Water ETF (FIW)

This well-established water fund tracks an index of companies that derive a substantial portion of their revenues from the potable and wastewater industry. Companies in the index are involved in water distribution; infrastructure such as pumps, pipes and valves; purification and filtration; and ancillary services like consulting, construction and metering.

Like PHO, Wolfenbarger says the fund has a reasonable expense ratio and good liquidity, with $1.8 billion in AUM, as well as strong three-year dividend growth and five-year price performance. FIW has an expense ratio of 0.53%.

Invesco S&P Global Water Index ETF (CGW)

In addition to owning lots of different companies, investors can seek diversification by geography, such as with this fund that tracks an index composed of developed market securities, including water utilities and companies involved in infrastructure, equipment, instruments and materials.

The fund “invests in water stocks on a global basis, which should benefit if (the) dollar weakens and international stocks begin to outperform,” Wolfenbarger says. Although smaller than the other two funds listed here, at $891 million in AUM, the fund still has good liquidity, he says.

Wolfenbarger also points to the fund’s reasonable expense ratio, attractive dividend yield, solid three-year dividend growth rate and decent five-year price performance. The fund has an expense ratio of 0.56%.

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7 Best Water Stocks and ETFs to Buy originally appeared on usnews.com

Update 01/27/25: This story was previously published at an earlier date and has been updated with new information.

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