The Prudent Investor


Another Look At Middlesex Water Company
February 6, 2007, 9:36 am
Filed under: Water Utilities

The Middlesex Water Company’s website is located at middlesexwater.com. Having worked as a Webmaster for the past seven years, I promise to keep my opinion of the company separate from my feelings of the company’s Webmaster – when I visit a website that resizes and repositions my browser I get a sickening feeling in my stomach. The website importantly displays its Mission Statement on the home page, and I would copy and paste it here except that they decided to display it as a picture, for some reason.

The latest quarterly report filing dates back to October 2006, so I would like to know why a more recent filing is not available. In the management’s discussion they spend time talking about how they will be raising capital to cover numerous costs for upgrades and maintenance. As the company maintains a 1.4 ratio of debt to equity, it is not comforting to see such a small company decide to take on more debt. One of the means by which they raise capital is by issuing stock through their Dividend Reinvestment Plan (DRiP) (more on this in a moment). This is a negative to the holder of the company’s equities because it dilutes the value of the stock, which is probably one reason why the stock price is currently the same as it was a year ago.

Speaking of their DRiP, I was initially interested because they noted that it was their discretion to offer stock through the plan at a 5% discount. Back in 2000 I wrote a weekly column for The Motley Fool, and one of my articles dealt with purchasing stock at a discount through a DRiP. I found this to not be a good idea when the basis for the company’s selection was this discount – after all, there is a reason why the company does this in the first place (if the company issues stock in this manner then they are getting a cheap loan). On the other hand, if the company is selected for other reasons and this discount is the icing on the cake, then it could be a nice present. I wrote Middlesex to clarify this a week ago. When they talk about their “discretion” I am wondering exactly what that means – does it mean that they did it once, they always do it but may end the practice, or something in between. Unfortunately, I have yet to receive an answer from them.

So whereas I am not going to toss the company from consideration, there are several concerns that need to be addressed before I seriously consider purchasing this company.

I will finish this section of examination next article with a look at SJW Corp.

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