I think this ASX small-cap stock is a bargain at $1.43

This small stock could make a big splash.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The ASX small-cap stock Duxton Water Ltd (ASX: D2O) could be one of the most appealing investments in the current economic environment, in my view.

It provides investors with exposure to water entitlement rights in Australia. Duxton Water provides water to farmers with a range of offerings including long-term entitlement leases, forward allocation contracts and spot allocation supply.

As at March 2025, it had a water portfolio value of $290 million and a post-tax net asset value (NAV) of $1.71 per share following the sale of $121.3 million of water entitlements to the Australian government.

There are at least three good reasons to like this ASX small-cap stock right now, in my opinion.

a water tap is turned on and showering out banknotes into the open hand of a woman below it.

Image source: Getty Images

Valuation discount

The latest NAV declaration means the current Duxton Water share price is trading at a discount of more than 16% to its underlying value. The pre-tax NAV is even higher, at $1.87, though I'm paying closer attention to the after-tax value.

Duxton Water said the sale proceeds from the government transaction are expected to be used to settle recent entitlement acquisitions, as well as to reduce the ASX small cap stock's debt levels.

Defensive earnings

Agriculture can be quite a cyclical industry, so farming businesses can be volatile over the years. But, water rights could be an appealing way to indirectly play that sector while also finding stability in a world rocked by a growing trade war between the US and various countries.

Duxton Water generates reasonably consistent lease income from its water rights portfolio, which would be appealing at this time.

Improving outlook

The ASX small-cap stock recently gave an update that weather conditions have remained dry in some areas of South Australia and Victoria. Despite some rainfall in NSW, there have been "no significant changes in the water storage levels in southern basin dams, which are still at their lowest for this time of year since 2021."

According to the company, water prices remain "firm across key catchments due to ongoing dry conditions and below-average storage levels".

Duxton Water said the demand for leases, forward contracts and carry-over space is reportedly increasing.

I think the above commentary bodes well for the company in the foreseeable future.

Passive dividend income

The ASX small-cap stock has been steadily growing its dividend for investors every six months since December 2017.

It's expects to pay a dividend per share of 3.71 cents in a few months. Added to the last paid dividend, the current grossed-up dividend yield is 7.4%, including franking credits.

Considering the defensive earnings and growing payout, I think the expected payout makes Duxton Water an appealing option.

Motley Fool contributor Tristan Harrison has positions in Duxton Water. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

Happy retirees celebrate with wine over lunch.
Dividend Investing

2 ASX dividend shares I'm betting on big-time to fund my retirement

I believe high-quality dividend stocks are worth their weight in gold.

Read more »

One hundred dollar notes planted in the ground, representing ASX growth shares.
Best Shares

This 4% ASX stock is my top pick for growth and income in 2026

Stocks of this calibre are exceptionally rare...

Read more »

Increasing white bar graph with a rising arrow on an orange background.
Growth Shares

Here's what I consider to be the very best ASX 200 share to buy in April

This business looks heavily undervalued to me.

Read more »

A shadow bear faces a man against the backdrop of a falling share price.
Opinions

How to invest during an ASX share bear market when you're worried about prices falling more

Is this the time to be brave or cautious about investing?

Read more »

Ecstatic woman on her phone giving a fist pump after reading some good news.
Opinions

5 ASX shares I'd buy with $10,000 this week

I expect these shares to rebound over the next 12 months.

Read more »

A man wearing a red jacket and mountain hiking clothes stands at the top of a mountain peak and looks out over countless mountain ranges.
Opinions

2 incredible ASX shares to buy in April

I rate these potential investments as exciting buys…

Read more »

Two people lazing in deck chairs on a beautiful sandy beach throw their hands up in the air.
Retirement

Why Soul Patts shares are a retiree's dream

This could be one of the best picks for retirees. Here’s why.

Read more »

Different Australian dollar notes in the palm of two hands, symbolising dividends.
Dividend Investing

An ASX dividend stalwart every Australian should consider buying

This business has a great track dividend record. I think it’s a strong buy…

Read more »