Dumpster Diving For Dividends - Investing In The Waste Disposal Business

Sometimes the least exciting businesses are the ones that can offer the most steady and reliable cash flows and profits which often translates into dependable dividend payments. We all know the saying “One man’s trash is another man’s treasure” and that may be the case when examining the waste industry for potential dividend payers to add to our portfolios.

While experiencing modest growth in the U.S., the waste industry is estimated to be worth about $55 billion in annual sales. One unique feature of the waste industry is that all humans require their services as virtually no alternatives for garbage disposal exist. As dividend growth investors we are constantly looking for solid dividend income plays from companies that offer ‘must have’ products or services, otherwise known as staples, while operating within a wide enough moat to potentially stifle any new competition that may arise. The waste disposal business showcases both the imperative and wide moat nature of this sector.

It comes as no surprise then that this industry is a staple among many wealthy investors. In fact, Bill Gates, directly and indirectly through his venture arm Cascade Investments, owns a sizable stake in two of the largest players in the space, Waste Management, Inc. (WM) and Republic Services, Inc. (RSG) owning approximately 4% and 25% of each company respectively. With that being said, let’s take an overview of some the of popular dividend paying stocks in the waste disposal business.

Starting out with one of the largest names in the U.S. disposal business is Waste Management, Inc. (WM). Headquartered in Houston, TX, WM currently yields a very reasonable 2.75% with a moderately high payout ratio of 59.8% based on an EPS of 0.23. Having a pretty decent record of raising dividends going back eleven years, WM sports a pretty decent ten year annualized dividend growth rate as well at 7.15%. From a valuation perspective, WM has a current PE of 19.5 with a similar forward PE around 20.0. While not cheap relative to the market the current PE falls way below WM’s five year average. Of course, as mentioned earlier, having Bill Gates as such a large shareholder in this company doesn’t hurt either.

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Disclosure: Long none.

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