The waste removal business is a business that all long-term investors should have exposure to. Here are a few key reasons:
- Waste removal is a recession-resistant business.
- Long-term growth business
- Solid profitability
- Shareholder friendly companies
- 3.86% yield
- 15 times forward earnings
- 15.83% operating margin
Highlights from WM's website:
Waste Management uses waste to create enough energy to power more than 1 million homes every year. By 2020, we expect to double that output, creating enough energy to power more than 2 million homes.
As North America's largest recycler, Waste Management managed more than 7 million tons of recyclable commodities in 2009. By the year 2020, we expect to increase the amount of material we manage to more than 20 million tons per year.
Through a joint venture with the Linde Group, we have built a plant that converts landfill gas into liquefied natural gas for use as fuel in our trucks. The facility is currently producing 13,000 gallons per day.
WM expects the amount of recyclable commodities it manages to double by 2020. This means that WM is still in a position to deliver tremendous growth going forward. WM's move to convert waste into natural gas that is used to power its own trucks is indicative of the creative nature of a company in a business many consider to be simple. WM rewards shareholders by paying a solid dividend. WM should be able to increase the dividend as business grows.
- 2.92% yield
- 13.4 times forward earnings
- 19.16% operating margins
Highlights from RSG's website:
We operate 348 collection companies in 40 states and Puerto Rico and provide top quality services to commercial, industrial, municipal and residential customers. Republic serves millions of residential customers under contracts with more than 2,800 municipalities for waste collection and residential services.
We have 76 materials recovery facilities (MRFs) and other recycling operations, which assist us in fulfilling obligations under long-term municipal contracts for residential collection services. These facilities primarily sort recyclable paper, aluminum, glass and other materials. Most of these recyclable materials are internally collected by our residential collection operations. In some areas, we receive commercial and industrial solid waste that is sorted at our facilities into recyclable materials and non-recyclable waste. The recyclable materials are salvaged, repackaged and sold to third parties. Non-recyclable waste is disposed of at landfills or incinerators.
CEO Donald Slager on Q4's conference call:
We repurchased 1 million shares in the fourth quarter for $29 million. During the past 12 months, we repurchased 15.7 million shares or 4% of our stock for $460 million. We have $650 million remaining under our authorization to return to our shareholders over the next 2 years. We remain committed to an efficient cash utilization strategy, which includes increasing cash returns to our shareholders through share repurchase and dividends. Total cash returned to the shareholders was approximately $770 million during 2011. Based on our current market capitalization, this represents a 7% cash yield.
In the fourth quarter, we saw a 20 basis point sequential improvement in our total Collection volumes. Our industrial Collection volumes were positive on a year-over-year basis for the quarter and for the full year. Our cost of operations as a percentage of revenue was flat on a year-over-year basis after adjusting for the impact of higher fuel expense.
Some of our operational achievements during 2011 include: we increased the automated portion of our residential fleet by 8%. 59% of our residential fleet is now automated, which exceeded our year-end goal. We continue to invest in our CNG fleet and natural gas infrastructure, with 6% of our fleet now operating on natural gas. In 2012, we expect about 65% of the trucks we purchase to be fueled by CNG.
RSG is making improvement operationally that should help increase profitability in the future. The company's share buyback program is a good way for the company to return money to shareholders. In addition to the buyback, RSG pays a solid dividend of just under 3% to reward shareholders.
The waste removal stocks make good investments for investors who are looking for shareholder friendly companies and solid long-term business prospects. The amount of waste removal needed will only increase over time. RSG & WM will continue to benefit from the long-term increase in waste removal service demand.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.