Turning Piles Of Trash Into Piles Of Cash

Includes: CWST, RSG, WCN, WM
by: Zvi Bar

This week, Waste Management (NYSE:WM), one of the largest and most aptly named waste management companies, announced that it was raising its quarterly dividend by 1.5 cents per share, to $0.355, which amounts to a 4.4% dividend increase.

At the same time, WM is down nearly 13% over the last six months and almost 20% so far in 2011. Given this behemoth’s action, it appears a sensible time to review the broader performance of this industry.

Below, in alphabetical order, I have listed five publicly traded trash companies and provided their recent performance rates.

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Garbage is a quasi-commodity, made of bits and pieces of many commodities. Before record oil prices made it profitable to wring oil out of the Canadian sands, that land was almost looked at as garbage.

Now, in many places, it is profitable to scavenge landfills for pieces of metal and plastic. In some poorer countries, people burn and melt down old computer components for until there is nothing left but the minimal amount of metal that survives. Indeed, one person's trash is another person's treasure.

It is believed that between 5% and 10% of global oil production is distilled and made into plastics. Due to the high (and growing) plastic content of garbage and the general ease in recycling plastics, trash is an ideal source for the raw materials needed for the making of plastics. All of this means that the waste business may not only grow in terms of volume, but also continue to develop new ways to monetize what others have cast aside.

Plastics are not the only recyclable garbage. Aluminum, for example, is also abundant in garbage and a commonly recycled resource. As the value of oil and aluminum increases, among other commodities, the depths to which trash shall be filtered will only increase. Beyond the high global demand for commodities and their increasing prices, newer green initiatives also appear likely to support the recycling industry.

All of this appears likely to benefit those companies that collect, sort and maintain trash, especially here in the United States where our trash is especially full of more valuable recyclables. Many of the publicly traded companies in this business are of significant size, and tend to acquire smaller businesses that identify new trash opportunities. The industry is also beloved for generally having strong cash-flows and dividends.

This industry is all too often overlooked, like so much trash that you may pass by on a daily basis. Take a look where you work and on your way home, and you will likely see at least one of these companies handling former trash and future treasures.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. This article is intended to be informative and should not be construed as personalized advice as it does not take into account your specific situation or objectives.