Waste Management, Inc. (WM) is a leading provider of collection, disposal, recycling and environmental services throughout the United States. It also owns and operates waste-to-energy and landfill gas-to-energy facilities that generate enough power to supply energy for hundreds of thousands of homes. It has about 45,000 employees and serves over 20 million residential, industrial, municipal, and commercial customers. Waste Management is North America's largest recycler as each year it manages millions of tons of recyclable commodities. The shares have dropped from a recent high of about $35, and investors should consider taking advantage of further weakness. In fact, this could be a perfect stock for income investors. Here's why:
1. Waste Management has been reporting solid financial results. Revenues for the third quarter were $3.46 billion. Net income for the quarter was $214 million, or 46 cents per diluted share. Without one-time after-tax charges, the net income would have been $285 million, or 61 cents per share. The charges were primarily for a labor dispute, and impairment of investments in unconsolidated entities.
2. Waste Management provides a generous dividend that currently yields about 4.4%. The average stock in the S&P 500 Index yields just over 2%, so Waste Management investors are collecting around twice as much. Furthermore, Waste Management has a solid history of making payments to shareholders and it has been regularly increasing the dividend. For example, in 2007 the quarterly dividend was 24 cents per share and it has increased it every year since. Today the quarterly dividend is 35.5 cents, so in about five years the payout has jumped by about 50%. That is a solid rate of growth in the dividend and it could be poised to continue with steady increases.
3. Income investors usually seek stability and that is something this stock can provide. Even if the global or U.S. economy slips into a recession or experiences another financial crisis, people and businesses are going to be creating garbage. That means this is a defensive business to invest in. It also has a very steady stream of cash flow, which adds stability and lowers risks. Furthermore, Waste Management appears well-positioned to raise prices if inflation occurs in the future. Investors who stay in bonds are typically at higher risk of losing purchasing power to inflation, but stocks tend to do better.
While no investment is risk-free, shares of Waste Management appear to have limited downside. There is always a chance for increased government regulations or labor disputes. However, this company has a history of successfully managing these types of issues. In a low-interest-rate world, collecting a 4.4% yield from a company with a very stable business model could make Waste Management a perfect stock for income investors to consider.
Here are some key points for WM:
- Current share price: $32.57
- 52-week range: $30.51 to $36.35
- Earnings estimates for 2012: $2.10 per share
- Earnings estimates for 2013: $2.28 per share
- Annual dividend: 90 cents per share, which yields 4.4%
Data is sourced from Yahoo Finance.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.