People want gold and oil. These commodities have long been synonymous with wealth.

But they need water. It’s something every one of the world’s seven billion-plus inhabitants needs every day for basic survival.

In the not too distant future, the wealth of some nations could be measured more by water than crude.

Drought-ravaged regions around the world are wrestling over water rights, rationing and other such issues.

Few people realize it, but drinking, bathing and other residential uses account for only about a tenth of all water consumption. Industrial applications use twice as much. And a whopping 70% of consumption is channeled toward agricultural uses. It takes 1,000 tons of water to produce just one ton of grain.

There isn’t always enough to go around, and water resource management is becoming a major issue — one that spells opportunity for investors.

Consolidated Water Company (Nasdaq: CWCO) has a tight grip on water distribution throughout half a dozen Caribbean nations. The company was granted its first public utility license in 1979 to serve residential and commercial customers in the Cayman Islands. In the past decade, a series of acquisitions has expanded the base of operations from Belize to Bermuda.

In the Bahamas, Consolidated Water owns and operates a massive desalination complex with the capacity to produce 12 million gallons of pure drinking water per day. The company also has a stake in an affiliate that supplies water to the governments of Tortola and Jost Van Dyke in the British Virgin Islands.

Combined, the firm manages 14 desalination plants throughout the region that pipe 26.8 million gallons of clean water each day to homes, businesses, resorts and government-owned utilities.

Consolidated Water is one of the world’s most experienced practitioners of seawater reverse osmosis technology. In comparison to the traditional thermal distillation process, seawater reverse osmosis is a radically different way to extract salt.

The process removes salt from water by pressurizing saltwater and then passing it through a special filter that doesn’t let the salt through.

The end result is the same. But seawater reverse osmosis is preferable from an investment standpoint over distillation, because the process is more energy efficient, which means lower costs (and wider profits) for every gallon of water produced.

Consolidated Water doesn’t spend too much time worrying about demand or searching for new customers. Why would you, when you’re the only one selling a product that everybody is buying?

As with other public utilities, Consolidated Water enjoys a monopoly throughout most of its territory. The company supplies 100% of the potable water in the Cayman Islands, where it has four water sale agreements that cover more than 10 million gallons per day. The same is true on the resort island of Ambergris Cay off the coast of Belize — it’s the only game in town.

Procuring the necessary raw materials to turn seawater into fresh water isn’t a problem. And higher energy costs aren’t a concern either. Aside from base pricing, the firm’s franchise agreements and supply contracts allow for upward monthly adjustments to pass along rising manufacturing costs.

In the past five years, Consolidated Water has been collecting approximately $55 million in annual revenue. About 40% of the proceeds come from retail customers, while larger bulk accounts represent the remaining 60%.

Through the first nine months of 2012, revenue is tracking 17% ahead of last year’s pace. Gross profits are up 14% to $16.6 million.

That growing income stream is putting more cash in stockholders’ pockets. The company is currently dishing out quarterly payments of 7.5 cents per share, for an annual distribution of 30 cents. At today’s prices, the stock is throwing off a tidy 3.8% yield.

And there is enough left over to support businesses development activities in the thirsty Baja California Peninsula in western Mexico. Looking ahead, the company is also exploring potential markets in southeast Asia. These expansions should help drive cash flows (and dividends) higher down the line.

Now, there is no guarantee that the company’s franchise licenses or water supply agreements will be renewed in the future.

But steady water sales volume and contractual pass-through rate hikes should make for highly visible and predictable cash flows. And the penetration of new markets should keep distributions growing in the future.

Action to Take –> I think this undervalued stock could hit $9 a share in the coming year, which added to the 4% yield could give investors a total return of more than 20%. That’s an attractive proposition in this shaky market.

P.S. — We’re in a new era of scarcity. Around the world, literally billions of people are all fighting for the same limited resources… which has created a big opportunity to profit. Gains of up to 8,000% have been made in the past decade from Scarcity & Real Wealth, but I think that’s just the beginning. I just finished several research reports detailing how you get bigger gains right now. To access them, click here.