Nobody likes hose pipe bans, especially gardeners, but there is one group of people who should welcome it. Investors in utility companies.

Water companies make money when people use water, and people use more water in warmer weather. A sure sign of warmer weather is the imposition of a hose pipe ban, or the threat of one. As and when that happens the investor could consider buying shares in any one of a number of water companies who are likely, after a period of warmer weather, to report an increase in profits.

Of course by then it is too late to fully exploit the situation. The time to do that is before everyone else does. As Warren Buffet commented, ‘you can’t buy what is popular and do well’. Water companies are rarely popular around the time of a hose pipe ban, so investors should pay attention.

1.     Some Examples Of Water Companies

These examples are provided for illustrative purposes only and do not constitute advice.

Severn Trent, Northumbrian Water Group and United Utilities are examples of water companies that the investor can investigate and assess.

Many utility companies such as these are often regarded as low risk due to the relative predictability of their income and relative stability.

2.     Timing Is Everything

Whilst you should not try to time the market, the intelligent investor should be aware of trends taking place and opportunities to exploit them.

A sustained period of warmer weather and gardeners using too much water is not a bad thing for water companies or the investors in them. Whilst they have a responsibility to ensure continuity of essential services in terms of supply, and have to behave responsibly within their regulatory frameworks, they are in the business of selling water. In hot weather, people use more water. 

‘When the well is dry, we know the worth of water.’

Benjamin Franklin

The threat of a hosepipe ban can be a signal to investors to pay attention to water utility companies.  

Jamie E Smith is the author of Making Money From Stocks And Shares

This content was provided by one of our users, Jamie