Covanta: Follow Insiders and Sam Zell

09/20/2017 2:50 am EST


Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

Sam Zell is one of the most successful real estate investors. Over his 50-year investing career, Zell has has employed a contrarian style and amassed a $5-billion fortune, explains Ian Wyatt, editor of High Yield Wealth.  

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Although Zell sold his Equity Office Properties Trust in 2007, he remains involved with several companies, including one NYSE-traded firm that intrigues us from an income-investor's perspective: Covanta Holding Corp. (CVA).

Unlike a typical C-corp, Covanta is designed to generate cash flow and deliver dividends. Zell, Covanta’s largest shareholder and chairman, owns 10% of the stock.


Covanta is small compared to Zell’s other companies. It’s equity market cap is $1.9 billion. But it’s big when it comes to the dividend. Its $1-per-share annual dividend offers a generous 7% yield, more than twice the yield offered by Zell’s other properties. 

Covanta provides waste and management services to municipal clients. Its core business is to own and operate infrastructure to generate energy from waste (EfW). If you are an environmentalist, or an investor, you’ll like the business.

As the largest provider of EfW services in the United States — accounting for 70% of the EfW industry — Covanta has an iron-clad competitive position. Due to tough regulations, only one new EfW plant has been built in the U.S. since the 1990s.

Investors have fixated on Covanta’s earnings which have trended lower over the past two years. Covanta has invested heavily in its facilities in recent years so its earnings are bogged down by high depreciation charges.

On the cash flow front, however, the news is more encouraging. So while earnings might not cover the dividend, the company's cash flow does.

Covanta CEO Stephen Jones, and two Covanta directs are two major buyers in recent months. Jones used his own money to buy 10,000 additional Covanta shares; the directors used their own money to buy 73,500 addition shares. 

Now is the time to follow the insiders’ lead and buy membership into this Sam’s club investment. We have a 12-month price target of $18 price target. If we toss in the 7% dividend yield, the potential total return exceeds 30%. 

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