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Dividend Growth Stock Overview: SJW Corporation

About SJW Corporation SJW Corporation (NYSE: SJW ) provides water services to customers in the San Jose, CA metropolitan area and to customers in the region between San Antonio and Austin, TX. The company was incorporated in California in February 1985, and is headquartered in San Jose. SJW has 395 full-time employees. The company is organized into four subsidiaries: (1) the San Jose Water Company; (2) SJWTX, Inc.; (3) SJW Land Company; and (4) the Texas Water Alliance. SJW Corporation does not report financial information for each of the subsidiaries separately. Originally incorporated in 1866, San Jose Water Company is the predecessor organization to SJW Corporation. In the 1985 reorganization, San Jose Water Company became a wholly-owned subsidiary of SJW Corporation. San Jose Water is a public utility that provides water service to over 1 million people in the metropolitan San Jose area. The company’s supply comes from a variety of sources, including groundwater, surface water, reclaimed water and imported water. Roughly 40-50% of its annual water production is purchased. SJWTX was incorporated in Texas in 1985, and does business as Canyon Lake Water Service Company. This subsidiary provides water service to roughly 36,000 people located in the region between San Antonio and Austin, TX. SJW Land Company owns undeveloped land in California and Tennessee, owns and operates commercial buildings in California, Arizona and Tennessee, and has a 70% interest in a real estate limited partnership. Finally, the Texas Water Alliance subsidiary is developing a water supply project in Texas to ensure future water supplies for the Canyon Lake Water Service Company. As a regulated utility, local and state authorities dictate SJW’s revenues and income. In 2014, the company had operating revenue of $320 million, which was up 15.5% from 2013. Net income more than doubled from 2013 to $51.8 million. Earnings per share did the same, coming in at $2.54, which gives the company a payout ratio of about 31% using the current annualized dividend of 78 cents per share. The revenue and income increase was due to approved rate changes, slightly offset by a reduction in customer water usage. The revenue increase continued in the 1st quarter of the year, with a 13.7% increase in revenue and a more than quadrupling of net income for the quarter year-over-year. In addition to the rate increases, the significant increase in net income was also due to a reduction of groundwater extraction costs. As a company that predominantly operates public utilities, SJW has had, and expects to have, large capital improvement expenditures. The company spent nearly $92 million on capital expenditures in 2014. In 2015, it plans to spend over $133 million as part of more than $660 million in capital improvements from 2015 to 2019. The company is a member of the Russell 2000 index and trades under the ticker symbol SJW. As of mid-July, the stock yielded 2.5%. SJW Corporation’s Dividend and Stock Split History (click to enlarge) SJW has grown dividends at less than 4% a year since 1995. SJW Corporation and its predecessor companies have paid dividends since 1944, and increased them since 1968. It announces annual dividend increases at the end of January, with the stock going ex-dividend in the first half of February. In January 2015, SJW announced a 4% dividend increase to an annualized rate of 78 cents per share. The company should announce its 49th consecutive annual dividend increase in January 2016. SJW Corp. historically increases its dividend in the low- to mid-single digit percentages, and the dividend growth rates reflect this. The company’s 5-year compounded annual dividend growth rate (CADGR) is 2.78%. Longer term, the CADGRs are slightly higher: the 10-year CADGR is 3.81%, the 20-year CADGR is 3.94% and the 25-year CADGR is 3.76%. SJW has split its stock twice. The splits occurred in close succession, with the company splitting the stock 3-for-1 in March 2004 and then 2-for-1 in March 2006. A single share purchased prior to March 2004 would have split into 6 shares. Over the 5 years ending December 31, 2014, SJW Corporation stock appreciated at an annualized rate of 10.40%, from a split-adjusted $19.35 to $31.73. This underperformed the 13.0% compounded return of the S&P 500 index and the 14.0% compounded return of the Russell 2000 Small Cap index over the same period. SJW Corporation’s Direct Purchase and Dividend Reinvestment Plans SJW does not have a direct purchase or dividend reinvestment plan. (The company initiated one for investors in 2011, but terminated it in 2014.) In order to invest in the stock, you’ll need to purchase it through a broker; most will allow you to reinvest dividends without any fee. Ask your broker for more information on how to set this up, if you are interested. Helpful Links SJW Corporation’s Investor Relations Website Current quote and financial summary for SJW Corporation (finviz.com) Disclosure: I do not currently have, nor do I plan to take positions in SJW.

June 2015 U.S. Fund Flows Summary

Volatility was on the rise in June. At the beginning of the month rate-hike worries plagued many investors after an upbeat jobs report raised the possibility of an interest rate hike this fall. The Labor Department reported that the U.S. economy had added a better-than-expected 280,000 jobs for May. Despite a rise in the unemployment rate to 5.5%, many pundits felt the Federal Reserve would be more likely to raise interest rates sooner rather than later. However, European equities showed signs of weakness, and investor handwringing began in earnest as investors contemplated the looming deadline for Greece to make its first debt payment to the IMF at the end of June. And while early in the month the Shanghai Composite rose above the 5,000 mark to its highest level since January 2008, on Friday, June 19, the Shanghai Composite posted its worst week in more than seven years as investors bailed on some recently strong-performing Chinese start-ups. Worries of high valuations and record levels of margin debt sparked the exodus. Investors’ trepidations were not easily dispelled, and by mid-month more talk about a Greek exit (“Grexit”) from the Eurozone and anxiety before the Federal Open Market Committee’s June meeting led to further selloffs in the equity markets. For June the Dow Jones Industrial Average, the S&P 500, and the NASDAQ were in the red, losing 2.17%, 2.10%, and 1.64%, respectively, while a strong small-caps rally helped send the Russell 2000 up 0.59%. For the second consecutive month investors were net purchasers of fund assets, injecting $8.9 billion into the conventional funds business (excluding ETFs) for June. For the second month in a row money market funds-taking in some $8.7 billion for June-witnessed the largest net inflows of the three broad asset classes. Stock & mixed-asset funds took in $7.7 billion for the month. And, for the first month in six mutual fund investors were net sellers of fixed income funds, redeeming $7.5 billion from the macro-group for June. Despite hitting multiple record highs and triple-digit lows in June, the markets were generally in a sideways pattern for the month. While the Russell 2000 and the NASDAQ Composite managed to break into record territory in mid-June, advances to new highs were generally just at the margin. However, at June month-end concerns about the Greek debt drama, looming U.S. interest rate increases, Puerto Rico’s inability to service its public debt, and China’s recent market gyrations weighed heavily on investors. U.S. stocks took a drubbing in the last week of the month as investors dumped risky assets after negotiations between Greece and its creditors collapsed. The Dow witnessed its largest one-day point loss in more than two years on June 29. A positive finish for equities on the last trading day of June wasn’t enough to offset the Greek debt-inspired meltdown from the prior day, and many of the major indices witnessed their first quarterly loss in ten, with the Dow and the S&P 500 losing 0.88% and 0.23%, respectively, for Q2 2015, while the NASDAQ Composite gained 1.75%. For June the dollar lost ground against the pound (-2.84%), the euro (-1.47%), and the yen (-1.47%). Commodities prices also declined, with near-month gold prices dropping 1.54% to close June at $1,171.50/ounce. Front-month crude oil prices declined 1.38% to close the month at $59.47/barrel. Despite the rise in volatility toward month-end, the ETF universe witnessed its fifth consecutive month of net inflows, taking in some $17.6 billion for June. For the fourth month running authorized participants (APs) were net purchasers of equity ETFs, injecting $19.7 billion; however, for the second consecutive month APs were net redeemers of bond ETFs-removing $2.1 billion for June. Shrugging off the on-again, off-again nature of the Greek debt drama, the volatile Chinese market, and a resurgence of news surrounding the possible default by Puerto Rico of its sovereign debt, for the fifth month in a row APs’ appetite for World Equity ETFs remained high. The macro-classification witnessed the strongest inflows (+$9.6 billion) of Lipper’s five equity-related macro-classifications, followed at a distance by U.S. Diversified Equity ETFs (+$5.8 billion), Sector Equity ETFs (+$4.3 billion), and Mixed-Asset ETFs, which attracted some $105 million for the month. The Alternatives ETFs macro-classification (-$146 million) suffered the only net outflows for the month.

Closed End Funds: Total Return Or NAV Return?

Closed-end funds are simple in concept, but complicated in practice. The big confusion comes from the frequent focus on distributions. While I believe distributions are strength for CEFs, they can also be a weakness. Closed-end funds, or CEFs, are something of an unloved stepchild in the pooled investment industry. Open-end mutual funds and exchange traded funds are the fair-haired children. But the lack of love paid to CEFs is really part of the appeal. Only you have to come to terms with how you want to measure CEF success. Returns When it comes to tracking pooled investment products you generally look at total return. This means including reinvested distributions into the performance equation. It makes sense to do this since CEFs, open-end mutual funds, and exchange traded funds are pass-through investments, meaning they have to send along any income or capital gains to shareholders. Calculating returns as if those distributions were put back to work is a simple method for including these distributions into returns and is a basic industry norm. Indeed, total return facilitates comparing funds to each other on an apples to apples basis. So, when looking at a CEF, you should consider more than just price performance. In fact, many CEFs focus on paying out large distributions. That leaves their net asset values, or NAVs, stagnant even though investors are receiving notable returns. A good example is Eaton Vance Tax-Managed Buy-Write Income Fund (NYSE: ETB ). ETB’s NAV at the start of 2010 was $15.59 a share. At the end of 2014 it was $16.31 a share. That’s an increase of 4.6% over five years. On the surface that sounds pretty abysmal. However, the fund distributed $6.98 per share over that span. Including this information completely changes the equation. And that’s why it’s important to look at total return and not just NAV. Complicating this is that CEFs trade on exchanges like stocks, but operate like mutual funds. And that leads to premiums and discounts to net asset value. Your results will be based on the market price, but when examining how a CEF is doing, you’ll want to look at NAV performance. Why? Market prices for CEFs are based on supply and demand, meaning investor sentiment rules the day. NAV is the actual performance of the portfolio. It’s a truer picture of management’s ability. But don’t forget NAV That said, you can’t forget about NAV and just look at total return. And distributions are, again, the reason. One of the big fears in the closed-end space is so-called destructive return of capital. This happens when a CEF pays out distributions while its NAV is falling. Over short periods of time this can provide shareholders with steady income, but over longer periods it can destroy a fund’s capital base and, thus, it’s ability to maintain distributions. On this front, take a look at Dreyfus High Yield Strategies Fund (NYSE: DHF ). In March 2011, the fund’s NAV was $4.08 a share. (The fund’s fiscal year ends in March.) By March 2015 the NAV had fallen to $3.84 a share. It paid out $2.22 a share in distributions over that span, producing a decent total return. However, looking beneath that, the distribution has fallen in each of the last five fiscal years. DHY’s distribution has gone from $0.52 a share in fiscal 2011 to $0.36 a share in fiscal 2015. So, yes, the fund’s trailing total returns aren’t bad. Yes, it still offers a notable yield. But the fund is getting smaller and smaller and so is the distribution. There are multiple reasons for this. One is that DHY is a high-yield fund dealing with an unusual low-rate world. So as bonds mature they are replaced with lower yielding fare. That said, with fewer assets in the fund, DHY is also hampered by the not so small fact that it can’t buy as many bonds as it could just a few years earlier. So this example shows that there are times when total return isn’t enough of a picture to decide on a CEF investment. Income for life The need to examine both total return and NAV is particularly important if you are an investor looking to live off the income your portfolio generates. In this situation you won’t be reinvesting your dividends, you’ll be spending them. And, thus, total return may be the best way to compare funds to each other, but it won’t be indicative of your portfolio’s performance or, more to the point, how long your money will last you. If your capital continues to decline over time because your CEFs pay out notable distributions that you spend while their NAVs are falling, you are in a much weaker position than total return alone might suggest. Which is exactly why destructive return of capital is such a buzz phrase. CEFs are a complex space and require a bit more thought than open-end mutual funds or exchange traded funds. And while their distributions often make them stand out from other pooled investment vehicle choices, you can’t just look at them from one angle and be done with it. So, look at total return and watch NAV. The stories each metric tells is important. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.