Badger Meter's 18% Dividend Hike: A 33-Year Streak of Shareholder Commitment in a Shifting Water Industry

When Badger Meter, Inc. (NYSE: BMI) announced an 18% increase in its quarterly dividend to $0.40 per share on August 8, 2025, it marked more than just a routine payout. This move extended the company's remarkable streak of 33 consecutive years of dividend growth—a testament to its financial discipline and long-term commitment to shareholders. For income-focused investors, the question is no longer whether Badger Meter can sustain its dividend, but whether this 125-year-old industrial stalwart can continue to outpace headwinds in a sector increasingly shaped by climate change, regulatory shifts, and technological disruption.

A Dividend Streak Built on Resilience

Badger Meter's latest dividend hike, which raises the annual payout to $1.60 per share, is a calculated bet on its ability to balance growth with shareholder returns. The company's Q2 2025 results provide a blueprint for this confidence: revenue rose 10% year-over-year to $238 million, driven by the integration of the SmartCover acquisition and surging demand for its BlueEdge smart water solutions. Free cash flow surged 19% to $40.6 million, a critical metric for sustaining—and growing—dividends.

Yet the numbers tell only part of the story. The 33-year streak reflects a strategic choice to prioritize stability in an industry where volatility is the norm. Unlike cyclical sectors, water management is a necessity, insulated from economic downturns. Badger Meter's ability to compound dividends over decades underscores its unique position as both a utility-like cash-flow generator and a growth participant in the digital transformation of water infrastructure.

The Math Behind the Margin

To evaluate the sustainability of this dividend, one must dissect Badger Meter's financials with precision. The company's operating margin dipped 40 basis points to 18.8% in Q2, largely due to elevated SG&A expenses from the SmartCover acquisition. However, gross margins expanded 170 basis points to 41.1%, a sign that operational efficiency and technology adoption are offsetting costs.

The payout ratio—though not explicitly stated—can be inferred from earnings per share (EPS) of $1.17 and the new annual dividend of $1.60, suggesting a ratio of approximately 136%. On the surface, this appears concerning. But context is key: Badger Meter's free cash flow of $40.6 million in Q2 (up 19% YoY) provides a buffer, and its strong balance sheet (with no long-term debt) offers flexibility. The company's management has also signaled confidence in maintaining high-single-digit organic growth, supported by a robust pipeline of Advanced Metering Infrastructure (AMI) projects.

Navigating the Waters of Uncertainty

The water industry is not without its challenges. Tariff-related cost pressures, particularly on copper, and potential EPA budget cuts loom as risks. Yet Badger Meter's leadership appears unfazed. The CEO's optimism is grounded in the company's diversified funding model—state revolving funds, municipal bonds, and rate increases—alongside its pivot to digital solutions. The BlueEdge portfolio, which integrates hardware, communications, and analytics, is not just a product line but a strategic moat in an era where data-driven resource management is paramount.

For income investors, the critical question is whether the company can maintain its dividend growth trajectory amid these headwinds. The answer lies in its ability to innovate. The SmartCover acquisition, for instance, has already driven 11% year-over-year sales growth in the utility water segment. If Badger Meter can replicate this success with future inorganic opportunities, its dividend streak may well extend to four decades.

A Case for the Long-Term Investor

Badger Meter's 18% dividend increase is more than a number—it's a signal. In a market where many high-yield stocks are burdened by debt or precarious cash flows, BMI offers a rare combination of defensive characteristics and growth potential. The 33-year streak is not a fluke but a reflection of disciplined capital allocation and a business model that aligns with global megatrends: urbanization, climate resilience, and digital infrastructure.

For those seeking income with a margin of safety, Badger Meter presents a compelling case. However, investors should monitor two key indicators: the pace of SG&A cost control and the company's ability to secure new AMI contracts. If these metrics hold, the dividend is likely to remain secure—and perhaps even accelerate.

In the end, the 18% hike is a reminder that in the world of investing, consistency often outperforms flash. Badger Meter's story is not one of explosive growth but of steady, methodical progress—a narrative that resonates deeply with those who value reliability in an unpredictable world.