Everyone hopes the terrible drought in the West will end very soon, but weather forecasters don’t hold out much hope for this. In fact, they say conditions are getting worse. The entire area west of the Mississippi is experiencing moderate to exceptional drought, and the western-most states in particular are being hit hard. What makes this even more worrisome is that the hottest part of the summer has just begun.
Water experts say this is the worst crisis in generations. Reservoirs across the region, which millions depend upon, are already well below normal and expected to drop to record low levels in the coming weeks. Restrictions on water use are becoming more common and more severe.
Montana has implemented fishing restrictions because of weak water flow in many rivers; Idaho is considering restrictions because abnormally dry conditions have spread through most of the state. Rattle snakes and bears, in search of food and water, have become too common a sight in many urban areas. And now grasshoppers, which have multiplied because of the dryness, are competing with cattle for food.
Near Perpetual Drought
Droughts are a common enough problem out west, but the current one has been exacerbated by many years of well below average rainfall.
“Since the year 2000 the western United States and northern Mexico have been in near-perpetual drought,” says UCLA Climate Scientist Park Williams. “There have been droughts that have lasted longer than this, but you’ll have to go back hundreds of years to find one.”
Williams says this drought, which has already lasted 21 years, is just as severe as the driest 21-year period in any of the historic megadroughts in the past. Even worse, 2021 is shaping as the driest of all the drought years in the last century and one of the driest in the last millennium, a fact determined by studying tree rings.
Government data bear this out. The US Drought Monitor, a weekly map that tracks drought conditions across the country, shows that more than half of the western US is in either an extreme or an exceptional drought - the two worst rankings. In the last 20 years, the total area in the US suffering from exceptional drought has never exceeded 11%; now, however, this number is approaching 30%.
The water level in the Hoover Dam, one of the nation’s largest hydroelectric power plants, has fallen to the lowest level ever record. The water level in Lake Mead, the largest reservoir in the US, has fallen to historic lows, and the rate of its decline is outpacing projections made just a few weeks ago.
Farmers in most of the West and some parts of the Northern Plains say this water shortage is “unprecedented.” From spring 2020 through winter of 2021, Arizona, New Mexico, Nevada, and Utah have experienced their driest stretch in 126 years. California and Nevada are now 100% in drought.
Normally by this time of the year crops have grown considerably, but this year they are failing. This has left farmers with a very difficult choice: bite the bullet and suffer losses on them or risk investing a lot of money in the hope that at least part of the crop can still be salvaged.
Many farmers have had the decision made for them because it’s impossible to get more water. However, letting their land lie fallow means getting locked into a difficult situation for next year, as it will take 12 months to harvest a new crop - even if the drought were to end immediately. Meanwhile, cattle and salmon farmers also are facing difficult situations.
The drought ultimately may have its biggest impact on consumers. California alone provides two-thirds of the nuts and fruits we use and one third of our vegetables; the price tags on these items could soar, the quality drop, and in some areas supplies could run out entirely.
Reuters reports that grain and oilseed prices are at or near their highest prices in a nearly a decade as global supplies tighten. Recently, planted corn, soybean, and spring wheat in Iowa, Minnesota, and the Dakotas are “at risk.”
Turning Water Into $$$$$$$
While farmers, residents and businesses try to figure out how to cope with the drought, some investors are trying to figure out a related issue: the best way to invest in water. This is not a simple question, as there are dozens of companies in the industry, and their businesses range from utilities to purification, power, and more.
As a group shares of water companies are not volatile, which to some is a virtue and to others a drawback. Most, however, enjoy a steady business, generally growing slowly, and often recession-resistant. Moreover, many pay dividends - not enough to make them glamorous but steadily, which adds to their appeal.
“Sure Dividend” has compiled a list of over 50 stocks in the business of water, which it derived from five of the top water industry ETFs (exchange-traded funds). Those are:
*Invesco Water Resources ETF (PHO)
*Invesco S&P Global Water ETF (CGW)
*Invesco Global Water ETF (PIO)
*First Trust ISE Water Index Fund (FIW)
*Ecofin Global Water ESG Fund (EBLU)
Sure Dividend also presents what it calls “The top 7 Water Stocks,” ranked by a combination of factors including their business model strength, yield, and future dividend growth potential.” These companies are:
*Global Water Resources (GWRS)
*Algonquin Power & Utilities (AQN)
*Essential Utilities (WTRG)
*The York Water Company *(YORW)
*California Water Service Group (CWT)
*American States Water Company (AWR)
*American Water Works Company (AWK)
All of these companies pay a dividend, the highest being a very impressive 4.4%. Most, however, won’t dazzle investors, as they are in the 1.5%-1.7% range. They do, however, have other strengths. Essential Utilities has raised its dividend for 29 consecutive years and has paid a quarterly dividend for 76 consecutive years. York Water has paid uninterrupted dividends for more than 200 years, and for 24 of them had consecutive dividend increases. And California Water has increased its dividend for 50 consecutive years.
As a group, water companies are stable, have a steady customer base, and are predictable - important characteristics to safety-oriented investors. Nevertheless, they could be impacted by problems related to water, the economy, or interest rates. When the market plunged in 2020, their shares also declined. And aside from these concerns, they could still be risky if purchased at a time when their shares are overvalued. As always, consult a financial advisor regarding investments.
With water levels in reservoirs dropping, crops failing, and states increasingly forced to impose restrictions on its use, many people are anxiously awaiting the coming rainy season. What may happen if it’s delayed or below average are very real concerns, but issues no one wants to think about at this point because there are no clear solutions.
Sources: drought.gov; kirksvilledailyexpress.com; reuters.com; usatoday.com; suredividend.com; YouTube: Bay Area Farmers, Ranchers Face Mounting Challenges As Drought Worsens; The Hoover Dam’s Water Falls To Its Lowest Level Ever; PBS: 2021 could be one of the driest years in a millennium and there’s no relief in sight