It has been a difficult year for the ASX share market with a number of businesses seeing declines. However, there are a few ASX shares that have managed to achieve positive returns. One of them has certainly helped my portfolio.
In 2022 to date, the S&P/ASX 200 Index (ASX: XJO) has dropped by 9%. The Betashares Nasdaq 100 ETF (ASX: NDQ) has fallen by 23%. Looking at one of my largest holdings as an example, the Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) share price has dropped 17%.
But, thankfully for me, the Duxton Water Ltd (ASX: D2O) share price has risen by 9% in 2022.
What is Duxton Water?
The company explains its strategy as such:
The primary investment objective of Duxton Water is to build a portfolio of permanent water entitlements and utilise this portfolio to provide flexible water supply solutions to our Australian farming partners. The company generates a return by offering irrigators a range of supply solutions including long-term entitlement leases, forward allocation contracts and spot allocation supply.
In summary, the ASX share owns water and leases it to farmers.
The company wants to build its portfolio of long-term water leases. The aim is to have between 70% to 80% of its portfolio under lease.
Why has it performed in 2022?
A commodity business like Duxton Water can see its returns heavily dictated by the performance of the resource.
However, wet conditions have persisted over the last two or three years, which has led to a "significant improvement" for all major dam storages and full soil moisture profiles across large areas of the basin.
Duxton Water revealed that despite the wet conditions and lower allocation prices, "entitlement values across most of the basin are trading at near all-time highs". The company has benefited from the pricing uplifts.
The management team explained:
Although it may seem counter-intuitive that entitlement pricing is sitting at near record highs given the current wet conditions, this shows that the demand and supply drivers that underpin water entitlement values are much stronger than the increased annual rainfall and dam storages that we've seen over the last two to three years. We believe the primary driver affecting water entitlement values is driven by an increasing inelastic demand for future water security from permanent crop producers across the basin. With high commodity prices and coming off the back of a couple of good seasons, permanent crop producers have been investing into their future water security by acquiring permanent water entitlements.
Permanent water pricing across the southern Murray-Darling Basin strengthened throughout July, with a weighted average increase of 0.6%, resulting in a rise of around 19% since July 2021, according to Duxton Water.
Dividends
One of the main reasons I'm attracted to Duxton Water, aside from the potential for good returns, is that the ASX share is planning to grow its half-yearly dividend to 3.4 cents per share in FY22, 3.5 cents per share for the 2023 interim dividend, and 3.6 cents per share for the 2023 final dividend.
Is the Duxton Water share price a buy?
I think it could be interesting at this level. It's valued at a 12.5% discount to the July 2022 post-tax net asset value (NAV) per share and a 25% discount to the pre-tax NAV. I'd be happy to buy shares.
