The Duxton Water Ltd (ASX: D2O) share price is up 1.5% this morning to $1.37 after reporting its monthly NTA to the market last week.
Whilst the one month performance was a miniscule 0.02% NTA improvement, over the past 12 months it has delivered a 21.41% return. This is a very solid return for what is essentially a defensive business.
Duxton Water’s business model is to buy water entitlements and then lease them out for income. It can profit from the growth in value of the water entitlements and also the lease income.
The company has over $134 million invested in water entitlements, with 75% of that invested in the Murray region.
According to Duxton Water, conditions remain dry across much of the Murray Darling Basin. The impact of low seasonal rainfall has seen inflows to storages fall well short of long-term averages. With the lack of localised rainfall and higher temperature across the Basin, irrigators have brought forward irrigation use, drawing on held reserves.
Whilst some large-scale farms are well-supplied with water entitlements, smaller-scale farms that rely on rainfall are doing it tough. Whilst I have personally supported their plight with the various causes, it is Duxton Water (and other water entitlement holders) that are seeing the benefit of the crisis.
An added bonus with Duxton Water is its bi-annual dividend plan. It currently offers a partially franked dividend yield of 3.6%.
I like that with Duxton Water you own a small amount of fresh water – an increasingly important commodity. It is also an indirect investment in Australia’s agricultural sector.
Duxton Water is currently trading at a slight premium to its reported NTA, however I think over the long-term it will be a good alternative asset to own.
Today is not as good a time to buy some shares as four months ago, but it may be worth buying a small parcel today and buying more on price weakness – I imagine water prices would fall temporarily if there is a rainy year.
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Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.