Investing in ASX water shares

Global demand for clean water is increasing. As with any commodity that has a finite supply, this creates investment opportunities.

A guy reclines in his backyard spraying water from the hose all over himself.

Image source: Getty Images

What are ASX water shares? 

A company listed on the stock market that operates in water treatment, irrigation, utilities, or water-related activities is a water share. This includes a broad spectrum of companies, with business models differing depending on jurisdiction-specific regulations and levels of privatisation. 

An investment in water can include investment in water assets, water treatment companies, and even plumbing suppliers. 

Factors including population growth, government capital expenditure, farm production, and seasonal rainfall patterns impact the water supply industry. The price of water can vary dramatically depending on seasonal conditions, with lower prices in wet years and higher prices in dry years. 

Governments increasingly seek to privatise or corporatise water networks, which means private sector participation will become increasingly important. Environmental, social, and corporate governance (ESG) concerns are also expected to have an increasing impact on the industry. 

Why invest in water?

Life on Earth depends on the availability of water. Crucial to human survival and sanitation, water is a vitally important resource. Yet just 0.5% of the world's water is fresh and available.1 

About 97% of the Earth's water is in oceans, which is too salty for drinking or agriculture. Of the 3% of fresh water, 2.5% is unavailable – locked up in glaciers and ice caps, too polluted, or too far beneath the Earth's surface to be affordably extracted. 

Water demand has increased by about 1% annually since 1980.2 As with any other scarce commodity, this creates opportunities for investors. As demand for clean water increases, water treatment businesses have grown into an investable asset class, many with state-of-the-art technologies. 

Access to fresh water is crucial to the health of populations worldwide, driving demand for the services of water treatment and water technology companies. This sector is expected to boom in the coming years as more countries seek solutions to ensure reliable, clean water supplies.

Top water stocks on the ASX

Water is not just a precious resource. It is an essential utility, meaning companies in the water business can be utilities providers. But they can also be in the technology sector, utilising software to optimise water usage. 

A handful of companies in the water business are listed on the ASX. They may operate across different ASX classifications, as water itself is not an ASX classification.  

Here are three top ASX water stocks rated by market capitalisation from high to low.

Reece Ltd

Australia's largest plumbing and bathroom supplies business, which also operates

in the irrigation, heating, air-conditioning, and refrigeration industries
Duxton Water Ltd

(ASX: D2O)
Owns and manages a portfolio of water entitlements, providing water supply

solutions to the irrigation community 
Fluence Corporation Ltd

A global pure-play water and wastewater treatment company delivering standardised

solutions to a growing, decentralised global market


Reece distributes plumbing and waterworks products to commercial and residential customers through more than 800 branches in Australia, New Zealand, and the United States. Although the company has seen a reduced demand from peak levels in 2023, FY23 was a strong year for Reece. Sales revenue increased 16%, with sales growth in all regions positively influenced by product inflation compared to the prior year. 

Disciplined cost management has been a priority in the context of inflationary pressures, allowing Reece to maintain an earnings before interest tax depreciation and amortisation (EBITDA) margin of 11%. Net profit after tax (NPAT) also increased 11% on an adjusted basis, reaching $405 million. This contributed to an 11% increase in earnings per share (EPS, despite the softening economic environment.

As global supply chains stabilised, Reece focused on normalising inventory levels while maintaining in-stock metrics. The company is looking to build scale in the United States, with 27 new branches added to the network in FY23. The company finished the financial year with 231 branches in the United States, five years after it entered the market. 

Duxton Water

Duxton Water actively manages a portfolio of permanent water entitlements and uses this portfolio to provide flexible water supply solutions to Australian farming partners. It generates revenue by offering irrigators supply solutions, including long-term entitlement leases, forward allocation contracts, and spot allocation supply.

In September 2023, the Bureau of Meteorology declared that an El Nino was underway, along with a positive Indian Ocean Dipole. These two climate drivers usually lead to drier than usual conditions in Eastern Australia, especially when coinciding. National rainfall was 70.8% below the 1961-1990 average in September, making it the driest September on record. 

The warm and dry conditions, in combination with the El Nino and Indian Ocean Dipole events, led to a spike in spot allocation prices. Irrigators relying on the allocation market have been proactively securing their water needs, with allocation prices trading up to $240 a megalitre in some zones. Demand for long-term leases remains strong as irrigators seek water security and cost visibility for coming years. 

Fluence Corporation 

Fluence provides water purification systems and water supply services for municipal wastewater treatment, industrial wastewater treatment, wastewater to energy, and water desalination markets. Its pre-engineered product solutions are designed to meet a broad range of needs, from smaller communities to city-scale systems. Fluence's expansive international footprint focuses on high-growth markets, including North America and Southeast Asia.

As of September 2023, Fluence had more than 800 installed plants worldwide, with customers including Coca-Cola, DuPont, and Pepsi. The business is increasing its focus on high-margin and capital-efficient smart product solutions that provide recurring revenue. New order bookings of US$132 million are forecasted for 2H 2023, with gross margin predicted to rise to 29% in the same period. 

Fluence expects the global water and wastewater treatment market to grow at a compound annual growth rate (CAGR) of 5.4% from 2022 to 2032 to reach $957 billion.3 The company is primed to capitalise on this growth, with strong customer relationships with many industrial, municipal, and developer end users. 

What to look for when buying water shares 

The world must urgently tackle climate change and water scarcity issues. Demand for global water resources is increasing, with water shortage an increasing concern. Water treatment is a highly fragmented and growing industry driven by increased regulation and a sustainability focus. Digital transformation in the sector is improving business processes and helping suppliers and customers make better decisions. 

The industry is building intelligent asset management into water utility processes, making an ever-increasing volume of information available. The integration and organisation of this data can maximise water consumption efficiency, bringing economic and environmental benefits by reducing costs and energy consumption. 

The industry is also deploying artificial intelligence to help provide more sustainable management of water resources. It uses these technologies to ensure the availability and sustainable management of water utilities, allowing providers to optimise resource management. Australian water businesses are at the forefront of advances in the industry and are well-positioned to benefit from improvements in water management technology. 

Pros of investing in ASX water shares 

Sustainability tailwinds: The increasing global focus on sustainability provides tailwinds to the sector and drives innovation in water treatment technologies. 

Technological advances: Machine learning has considerable potential to automate processes that are costly to manage manually. 5G is opening up business opportunities that were not possible previously, thanks to its ability to connect millions of devices.

Diversification: Like oil and gold, water is a commodity. Investing in a water company can provide portfolio diversification

And the cons

Regulations: Because of its importance to human life, the water industry is often subject to intense regulatory oversight, which can necessitate expensive compliance programs. 

Infrastructure: Treating and supplying water requires expensive infrastructure that needs continual upgrades and maintenance. 

Are ASX water stocks a good investment? 

Water is a crucial input into everything from beverages to agriculture to manufacturing, so it is one of our most essential utilities. Water sourcing, distribution, and treatment is a multibillion-dollar global industry. Climate change impacts mean water shortages will likely become more common, and demand for the resource will increase. There has been a recent upswing in the market for investments that profit from the need for fresh, clean water. 

At the same time, water technology is advancing at an accelerating pace, piquing investor interest. Whether ASX water stocks are a good investment for you will depend on your investment goals and financial circumstances. However, an investment in water stocks can act as a hedge against the risks of climate change and potentially provide handsome financial returns. 

For investors who are not confident trading individual stocks, a water exchange-traded fund (ETF) such as the Invesco Global Water ETF (NASDAQ: PIO) or Invesco Water Resources ETF (NASDAQ: PHO) can provide broad exposure to the water market. 

Unfortunately, there are not currently any water ETFs listed on the ASX. A number of them can be accessed via United States exchanges.

Article Sources


1. Bureau of Reclamation, Water Facts – Worldwide Water Supply

2. Duxton Water, Investor Presentation May 2022

3. Fluence Corporation, Investor Presentation September 2023

This article contains general educational content only and does not take into account your personal financial situation. Before investing, your individual circumstances should be considered, and you may need to seek independent financial advice.

To the best of our knowledge, all information in this article is accurate as of time of posting. In our educational articles, a 'top share' is always defined by the largest market cap at the time of last update. On this page, neither the author nor The Motley Fool have chosen a 'top share' by personal opinion.

As always, remember that when investing, the value of your investment may rise or fall, and your capital is at risk.

Motley Fool contributor Katherine O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2024 $47.50 calls on Coca-Cola. 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.