Waste Management: A "Steady Eddie"

12/06/2018 5:00 am EST

Focus: INDUSTRIALS

Charles Carlson

Editor, DRIP Investor

Given the increased market volatility, classic “Steady Eddie” companies and their stocks should be increasingly in demand. One such company is Waste Management (WM), North America’s largest provider of waste-management services, asserts Chuck Carlson, editor of DRIP Investor.

Though far from the sexiness of, say, tech companies, Waste Management’s business is consistent and reliable. Per-share profits have risen annually since 2012 and have beaten the consensus analysts’ estimate in each of the last five quarters.

Dividend growth has been steady, too, with the dividend rising annually since 2003 and increasing more than 9% this year. Yielding 2%, the stock represents a defensive play in a market environment that seems to be shifting to such stocks.

Waste Management services more than 21 million municipal, commercial, and industrial customers in the U.S. and Canada. The firm is North America’s largest residential recycler and a renewable energy provider. The company’s fleet of natural gas trucks is the largest heavy-duty truck fleet of its kind in North America.

Waste Management is coming off a solid third quarter. Adjusted per-share profits rose nearly 28%. Revenue for the quarter rose nearly 3% to $3.82 billion. The company’s core collection and disposal business generated organic revenue growth of 6.4% as a result of strengthening prices and volumes.

With the exception of last year’s fourth quarter, which had significant hurricane-related volumes, the third quarter was the strongest core price and volume quarter in the company’s history.

Overall results would have been even better if not for the headwind in the company’s recycling business. Average recycling commodity prices at the company’s facilities were approximately 47% lower in the third quarter versus the year-earlier quarter.

Given that recycling prices are near their lows, it is possible that the recycling headwind could turn into a tailwind in 2019 with any bounce in recycling commodity prices. Prospects for 2019 look decent. Per-share profits are expected to grow at least 7%, with a nearly 5% increase in revenue. The dividend, which is currently $0.465 per quarter, should rise at least 7% in 2019.

Waste Management has been resilient during the market’s latest downdraft, with these shares trading just off their 52-week high of just over $93. Trading at about 20 times the 2019 earnings estimate of $4.43 per share, these shares are not exactly inexpensive.

But the company’s steady performance, growing dividend, strong market position, and its relatively low volatility versus the market make these shares a compelling choice for investors who want cash flow, dividend growth, and decent capital-gains potential wrapped in a lower-risk package.

Please note that Waste Management offers a direct-purchase plan whereby any investor may buy the first and every share directly from the company. Minimum initial investment is $500.

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