The Anatomy Of A Stock Purchase

Jul.12.12 | About: Waste Management, (WM)

Scrolling through the articles that Seeking Alpha had emailed to my inbox, I came across High-Yielding Waste Management by David Wren. I decided to check out what was new about a company that has been on my watch list.

The first-time author—all of 18 years old, as I learned from his profile—gave a nice summary of Waste Management, Inc. (NYSE:WM) and offered some sound reasons for including it in one's Dividend Growth portfolio. I was interested enough to click on the bright blue WM symbol to get more particulars.

"What's the deal?" I asked out loud; my loyal pup Simmie was the only one in the room, and she didn't answer. "Waste Management is down more than 5 freakin' percent?" I returned to the article and scanned the comments. A fellow reader, jayridescarbon, told everybody what the deal was: Morgan Stanley had downgraded the company earlier Wednesday.

Incredibly, a well-regarded firm that's been growing dividends by 90 percent since 2005 had plunged nearly $2 from Tuesday's closing price and was trading in the low-31s. Though on my watch list, Waste Management had been on the back burner as I focused on other companies, including those in the oil, REIT and utilities sectors. Still, with this sharp price drop, I decided it was time to do some research to see if I should get Waste Management while the gettin' was good.

The stock hadn't traded at such a low price since before Christmas. Prior to that market pullback, it hadn't traded near $31 since the summer of 2010. On only a few occasions had Waste Management ever yielded as much as 4.5 percent. Trusted SA colleagues such as David Crosetti, chowder and Bob Wells have made Waste Management an important part of their portfolios. Of the 100 equities held in the esteemed Vanguard Wellington fund, Waste Management was the 41st largest holding.

Even in downgrading the company, Morgan Stanley admitted it "has managed to outperform its rivals ... "

And then there was this from Morningstar:

With close to 300 landfills, Waste Management's unparalleled dominance in landfill ownership makes it a formidable competitor in the integrated waste services space, covering the nation with disposal sites even as the overall number of domestic landfills shrinks due to strict environmental regulation. In addition, the company's massive scale in collection routes creates a symbiotic relationship between company-owned haulers and landfills, creating efficient waste streams that funnel volumes to valuable landfill space. With steady, annuitylike revenues in its collection segment and pricing power at landfills, Waste Management's core business generates strong cash flows as it provides necessary services to residential, commercial, and industrial customers.

Yes, the company has more debt than I'd like. But when this kind of industry leader and dividend grower can be had at an attractive price and yield point due only to an analyst's downgrade, it was time to be a buyer. Waste Management was trading at around $31.30 when I made my decision. I put in a limit order at the palindromic price of $31.13. If it got that low, great. If it didn't and started ticking back up, I was willing to go to $31.50. I was fortunate to be able to monitor the situation in my home office.

At 1:14 p.m., my price was met and I became the proud owner of 350 shares of Waste Management at $31.13 apiece—making for a dividend yield of 4.56 percent. Only 11 million more shares, and I'll surpass Vanguard Wellington's stake!

I wanted to write this to give a look at my process of buying this stock from start to finish. I also wanted to give a shout out to David Wren, a teenage SA author whose fortuitously timed debut article put Waste Management on my radar and, by extension, in my portfolio.

Disclosure: I am long WM.