Water is the rare sector where demand never falls and the bill keeps rising. The EPA's most recent needs survey found that US drinking water systems require $625 billion in upgrades over the next 20 years, and more than $420 billion of that is just replacing aging pipes. The best water stocks right now include American Water Works, Essential Utilities, American States Water, Xylem, Veralto, Pentair, and Advanced Drainage Systems, a group that spans regulated utilities and the technology companies that build and monitor the systems. We screened the US-listed water sector and narrowed it to seven names based on where the money is actually flowing.
How We Picked These Stocks
More than two dozen water companies trade on US exchanges, from tiny municipal utilities to global equipment makers. We filtered for three things: water as a primary revenue source, a market cap above $3 billion for liquidity, and either a long regulated-dividend record or recurring technology revenue. We excluded bottled-water and beverage names, which are really consumer-staples plays, and any pure development-stage company with no earnings. The result is seven profitable businesses that each own a different piece of the water buildout.
Xylem (NYSE: XYL)
Why it made the list: Xylem is the largest pure-play water technology company in the US, with more than $8 billion in annual revenue. It sells the pumps, smart meters, leak-detection sensors, and treatment systems that utilities buy to meet those EPA mandates. Its Sensus metering and Flygt pump brands are installed in thousands of water networks worldwide.
The bull case: As utilities digitize, more of Xylem's revenue shifts to software and recurring service contracts, which carry higher margins than hardware. Every dollar of pipe-replacement spending pulls through demand for the equipment Xylem makes.
The risk: Xylem is an industrial company, not a utility, so its earnings track municipal and industrial capital budgets. A slowdown in construction or utility spending would hit orders.
Key number: More than $8 billion in annual revenue, the largest in pure-play water technology.
American Water Works (NYSE: AWK)
Why it made the list: American Water Works is the largest publicly traded water and wastewater utility in the country, serving roughly 14 million people across two dozen states. As a regulated utility, it earns a set return on the capital it invests, so its planned spending of about $40 billion over the next decade converts almost directly into future earnings growth.
The bull case: Regulated returns make earnings predictable, and the company grows further by buying small municipal systems that cannot afford their own upgrades. Its beta near 0.6 means the stock tends to move less than the broad market.
The risk: Rate-regulated utilities carry heavy debt, so higher interest rates raise borrowing costs and can pressure the stock. Regulators can also deny requested rate increases.
Key number: Roughly 14 million people served across about two dozen states.
Veralto (NYSE: VLTO)
Why it made the list: Veralto was spun off from Danaher in late 2023 and runs the Hach, Trojan, and ChemTreat water-quality brands. It sells the instruments and treatment chemicals that test and clean water, and much of that revenue repeats every year because customers reorder consumables and reagents.
The bull case: About 60% of sales are recurring, which produces steady cash flow and operating margins above 20%. The razor-and-blade model means each installed instrument creates years of follow-on chemical sales.
The risk: Veralto is still young as a standalone company, and its Product Quality segment ties part of its results to consumer-packaging demand rather than water.
Key number: Around 60% of revenue is recurring, mostly consumables and services.
Pentair (NYSE: PNR)
Why it made the list: Pentair makes water treatment, filtration, and pumping systems for homes, businesses, and farms, and it owns a large residential pool equipment business. That pool segment carries the company's fattest margins and gives it a consumer-recurring revenue base most water names lack.
The bull case: Pentair has spent the past few years cutting costs and lifting margins, and its filtration and treatment lines ride the same clean-water demand as the utilities. It is a dividend payer with decades of consecutive increases.
The risk: The pool business is tied to housing and consumer spending, so a weak home market slows a big chunk of profits.
Key number: Decades of consecutive annual dividend increases, backed by high-margin pool equipment.
Advanced Drainage Systems (NYSE: WMS)
Why it made the list: Advanced Drainage Systems is the leading US maker of thermoplastic pipe used for stormwater management, plus septic and water-treatment systems through its Infiltrator brand. Its recycled-plastic pipe is cheaper and longer-lasting than concrete, which is winning share in infrastructure projects.
The bull case: Stormwater rules are tightening as flooding worsens, and federal infrastructure money flows toward exactly the drainage and retention systems the company sells. Infiltrator gives it a growing wastewater business.
The risk: Roughly half of demand is tied to construction, so the stock is more cyclical than a regulated utility and can swing hard, as its recent one-day drop showed.
Key number: The largest US producer of thermoplastic corrugated pipe for stormwater.
Essential Utilities (NYSE: WTRG)
Why it made the list: Essential Utilities serves about 7.5 million people across ten states through its Aqua water brand and Peoples natural gas brand. The mix gives it a larger regulated asset base to invest in, and water makes up the majority of that base.
The bull case: Like American Water, it grows by acquiring small municipal water systems and earning a regulated return on upgrades. Its yield is among the highest in the group, appealing to income investors.
The risk: The natural gas segment adds commodity and regulatory exposure that pure water utilities avoid, and rising rates lift its debt costs.
Key number: About 7.5 million people served across ten states under the Aqua and Peoples brands.
American States Water (NYSE: AWR)
Why it made the list: American States Water is the smallest name here but owns the longest dividend record of any publicly traded US company. It has raised its dividend every single year since 1954. It supplies water in California and runs long-term contracts operating water systems at US military bases.
The bull case: The military contracts, some running 50 years, add a stable, inflation-linked revenue stream on top of the regulated California utility. That dividend streak reflects unusually steady cash flow.
The risk: California regulation is strict, and the small size means a single rate decision or drought policy carries more weight than it would for a larger utility. The valuation is often the richest in the sector.
Key number: Dividend raised every year since 1954, the longest streak of any US public company.
The Water Sector Right Now
Water investing splits into two camps. Regulated utilities like American Water, Essential Utilities, and American States Water own the pipes and treatment plants and earn a set return approved by state regulators. They behave much like the names in our guide to the best utility stocks: steady, defensive, and prized for dividends. The technology and equipment makers like Xylem, Veralto, Pentair, and Advanced Drainage Systems sell into that spending and grow faster, but with more cyclical swings.
The shared tailwind is age. Much of the US water network was laid more than 75 years ago, and the EPA's $625 billion needs estimate keeps climbing with each survey. That spending is not optional, because a broken main or a lead-pipe violation forces action regardless of the economy. Federal infrastructure funding adds a second layer of demand on top of the rate increases utilities already collect.
For income-focused investors, the regulated utilities pair well with the ideas in our best dividend stocks guide. For those hunting cheaper entry points, several of these names trade well below their 52-week highs, a setup worth comparing against our best value stocks coverage.
What to watch:
- Rate case decisions: State regulators approve the returns utilities earn on new investment, and pending cases in California and Pennsylvania will shape 2026 earnings for AWR and WTRG.
- Interest rates: Because utilities borrow heavily to fund pipe replacement, the path of rates directly affects their borrowing costs and their appeal versus bonds.
- Infrastructure funding: The pace at which federal water grants reach projects drives near-term orders for Xylem and Advanced Drainage Systems.
Bottom Line
Water is a slow, defensive theme built on a spending need that runs for decades. Income investors will lean toward the regulated utilities and their reliable dividends, while investors who want growth and can stomach more volatility will prefer the technology and equipment names. Owning one of each captures both sides of the same buildout.
Frequently Asked Questions
What is the best water stock to buy?
There is no single best pick, because water stocks serve different goals. American Water Works is the largest regulated water utility and the standard choice for steady dividends and low volatility. Xylem is the largest water technology company and offers more growth. American States Water owns the sector's longest dividend-increase streak, dating to 1954.
Are water stocks a good investment?
Water stocks appeal to investors who want defensive, dividend-paying exposure to a need that does not disappear in a recession. Regulated water utilities earn predictable returns and tend to move less than the broad market. The trade-off is slower growth and sensitivity to interest rates, since these companies borrow heavily to fund infrastructure.
How can I invest in water?
You can buy individual water stocks such as American Water Works, Xylem, or Essential Utilities directly through a brokerage account. Investors who prefer diversification often use water-focused ETFs, which hold a basket of utilities and equipment makers in a single fund. Both approaches give exposure to the same infrastructure spending trend.
Do water utilities pay good dividends?
Yes. Regulated water utilities are known for steady, growing dividends because their earnings are predictable. Essential Utilities carries one of the higher yields in the group, while American States Water has increased its payout every year since 1954, the longest such streak of any publicly traded US company.
Why is water infrastructure spending rising?
Much of the US water network is more than 75 years old and needs replacement to prevent leaks, contamination, and service failures. The EPA estimates $625 billion in required upgrades over 20 years, with pipe replacement the single largest category. Federal infrastructure funding and stricter water-quality rules add further demand.
