NEW YORK (MainStreet) Though welcomed rain brought a dab of relief to California this week, the state still struggles with a drought that is classified as "extreme" or even "exceptional" the most severe rating for water deprivation.
Reservoirs are baked dry, and cattle owners are selling off their herds due to lack of feed and water. Some California residents are facing water restrictions. Throughout the West and Midwest, "significantly more precipitation will be needed to overcome longer-term deficits," according to the U.S. Drought Monitor.
David W. Richardson, managing director of Impax Asset Management, says these conditions only exacerbate a growing global crisis: without relief, by 2030 global water demand will outstrip supply by 40%. He sees not only a problem but an investment opportunity.
"By 2050, this fresh water deficit has the potential to put $63 trillion or 22% of global gross domestic product at risk," Richardson says in a report. "In developed markets, substantial investment is needed to upgrade aging infrastructure, and the costs of doing so are rising steeply. Cumulative water infrastructure spending requirements are expected to exceed $23 trillion by 2030."
Richardson says water infrastructure companies can provide steady growth on a global basis -- and up to 20% in some developing markets. Businesses range from pumps, pipes and valve manufacturers to companies supplying equipment for irrigation and infrastructure projects.
"Water treatment companies typically offer high levels of profitability and steady growth profiles," Richardson says. "High value-added products, such as desalination membranes or advanced treatment technologies command higher margins and offer a greater degree of earnings visibility because of steady demand for critical products in existing processes. With increasing demand requirements from growing coastal communities, desalination is a key area of growth."
Water utilities are another segment to consider, according to Richardson, because they are defensive in nature, have stable cash flows and attractive dividends.