There's a big difference between milky sludge on the dipstick and water in the oil. If you have a fair amount of condensation within the engine, the dipstick is a way out, and can cause a milky residue in the tube, and on the stick.
But if there's water getting into the oil from a nefarious source, the oil will also turn milky.
Run the dipstick in and out several times, wipe it off real good each time. Look at the oil on the dipstick, whatever color it may be, it should be transparent. Any water will lighten the oil, making it cloudy, and/or it may have tiny bubbles.
One way to test is to take some of the oil, 1/2 cup is plenty, put it in a wide shallow bowl of some sort, then put it in the freezer. If there's ANY water in it, it'll form ice crystals and float to the top of the oil...
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