Seeking Alpha
Long only, value, growth, dividend investing
Profile| Send Message|
( followers)  

Summary

  • The dividend is a high 3.36%.
  • The company produced more power last year than the entire solar industry.
  • Financial metrics have deteriorated from seven months ago.

The last time I wrote about Waste Management, Inc. (NYSE:WM), I stated, "What troubles me for now is that the stock is fairly valued, has low growth potential, and the overbought technicals; it's for these reasons I will not be adding to my position now because I think I can get it at a lower price." The stock has dropped 2.28% (and lost 11.51% at some point in March) versus the 8.9% gain the S&P 500 (NYSEARCA:SPY) posted during that time frame. It's safe to say that I made a good decision not to buy some more shares at the time. Waste Management is a provider of waste management services in North America which collects, transfers, recycles and disposes of waste.

On April 24, 2014, the company reported first-quarter earnings of $0.49 per share, which beat the consensus analysts' estimates by $0.05. In the past year, the company's stock is up 11.97% excluding dividends (up 15.44% including dividends) and is losing to the S&P 500, which has gained 23.26% in the same time frame. Since initiating my position back on 21st May, '13, I'm up 4.69%, including dollar cost averaging and reinvested dividends. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if right now is a good time to purchase more of the stock for my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 135.24, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 17.43 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (16.04), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 8.43%. Below is a comparison table of the fundamental metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

06Sep13

39.85

21.9

16.7

2.39

35

2.06

10.62

24Nov13

46.10

23.28

19.11

2.41

36

2.34

9.94

22Jun14

44.63

135.24

17.43

2.56

38

16.04

8.43

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.36% with a payout ratio of 455% of trailing 12-month earnings while sporting return on assets, equity and investment values of 0.7%, 2.6% and 4.5%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.36% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 11 years at a 5-year dividend growth rate of 6.2%. Below is a comparison table of the financial metrics for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

06Sep13

3.66

79

3.7

13.3

8.7

24Nov13

3.17

74

4

14.3

8.7

22Jun14

3.36

455

0.7

2.6

4.5

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock near overbought territory with a current value of 64.77. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is about to cross above the red line with the divergence bars increasing in height, indicating the bullish momentum is about to get started. As for the stock price itself ($44.63), I'm looking at $44.81 to act as resistance and the 20-day simple moving average (currently $44.12) to act as support for a risk/reward ratio, which plays out to be -1.14% to 0.4%.

Conclusion

Did you ever think that the garbage you produced in 2013 created more energy through Waste Management than the entire solar industry created in 2013? Waste Management produced 9.82 million megawatt hours of energy last year while the solar industry created 9.25 million. I was never one to like the solar industry to begin with, but I never thought that garbage can produce so much energy either. I like the company for being able to think green. Fundamentally, I believe the stock to be fairly valued on next year's earnings estimates but expensive on growth potential. Financially, the dividend is pretty good but the financial efficiency ratios have deteriorated dramatically seven months ago. On a technical basis, the stock is near overbought territory but I see just a little bit more upside to squeeze into for now. I don't like buying a stock when it's near overbought territory and coupled with deteriorating financial metrics and fair valuation on next year's earnings estimates don't make me too enthusiastic on the stock. I'm going to stay on the sidelines again in this name for right now.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Waste Management: Garbage Stinks But The High-Yielding Dividend Is Sweet Smelling