Income Investors - Have You Considered the Waste Managment Industry?
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One industry that should be considered by income investors that is often overlooked is the Waste Management industry. In the U.S. alone we generate about 250 million tons of trash yearly and someone has to get paid to haul it somewhere. That is not going to change even in a slumping economy. Big money is in the landfill business and there are a couple companies that sit at the top of this industry. These two companies make a profit and continue to turn this money over to shareholders as nice dividends.
Waste Management (NYSE: WM) is the largest of these companies. The company had a nice bullish run but succumbed to the bears of May like most companies recently — dropping from a high of $36 down to $32. It looks like it is rebounding. If there ever was bullish sentiment on this stock, it might have been revealed by a huge options play recently as a block of 21,000 October 2012 ‘34’ call options were purchased. This trade is sizeable considering it is well over 5 times the size of the normal options transactions in this stock. At the writing of this article, Waste management is trading at $32.48 and with a median price target of $35.00. Apparently, someone is bullish enough on the stock to believe it will rise to the occasion this year.
Waste Management is a solid company and offers a dividend of 4.40%. They continue to expand and one of the newest industries they are moving into is the “Storm water Business.”
Teaming with a company called AbTech, they are commercializing this business with its “storm water solutions.” Helping municipalities meet their clean water needs was going to have to take place through a complete management system focused upon cost-effective strategies for reducing storm water runoff. Working together with municipalities, Waste Management will provide the management while AbTech will provide the innovative treatment technologies along with other viable systems when needed.
AbTech's offerings include the ground-breaking new antimicrobial technology called Smart Sponge® Plus. It recovers and fully encapsulates low levels of the recovered oil. It can fully remove sheen from the water. It is a low cost, low maintenance technology that offers a nice alternative to more expensive methods.
Republic Services (NYSE: RSG) is another company in this sector that I like. Althoughits dividend is a bit less than Waste Management, about 3.39% it is still respectable. Presently, the stock has mirrored WM in the sense that it has been influenced by a slowing economy also. Analysts are not as sold on this company right now though. As replacement/retention costs appear to be high and the company has a highly uncomfortable turnover rate right now. Piece those together with a flat volume growth and analysts hide in the “neutral zone” when it comes to this company. But that should not deter the long term income investor from investigating these two companies.
Ryan Fitzwater, of Investment U Research wrote a nice article comparing the three main companies in this industry. Waste Management, Republic Services, and Waste Connections (NYSE: WCN). I encourage readers to look through the article. In his comparison, he picked Waste Connections as his winner. One point of interest is that it just started handing out dividends in 2010 so it is much lower than the other two, coming in at 1.14%. But it has a one-year dividend growth rate of 53.33% and will likely continue to grow its dividend in the future.
The Waste Industry is a good industry to study if you are interested in income investing. You have a consistent cash flow that will continue regardless of the economic conditions. Take a look for yourself.
johnmylant has no positions in the stocks mentioned above. The Motley Fool owns shares of Waste Management. Motley Fool newsletter services recommend Republic Services and Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.