Companies in the municipal solid waste sector are well-known for their cash-flow generating prowess and relatively stable operating performance. As outlined in this waste industry primer, a trash-taker’s residential collection operations are on a service-based model (not-volume based) and help to mitigate cyclical pressures in other economically-sensitive lines of their business (industrial roll-offs, etc.).
Further, cell-by-cell landfill development provides additional flexibility with respect to capital outlays, as rubbish handlers can scale back expenditures during troubled economic times, bolstering free cash flow. Such consistent, cash-rich business models have translated into a nice flow of dividends, particularly at the largest two domestic players, Waste Management (WM) and Republic Services (RSG).
[Click to enlarge]
With corporate bond yields at relatively unattractive levels compared to other asset classes and concerns about a double-dip recession coming back into vogue — check out the recent ADP jobs report and ISM manufacturing index — allocating a portion of your portfolio into a stable high-yielder in the waste sector seems like an attractive long-term option.
As the table above reveals, one can capture the best dividend yield with Waste Management, but likely participate in the greatest dividend growth via Waste Connections (WCN), which recently initiated a quarterly payout. Investors should expect a dividend hike at Republic Services later this year and continued convergence to Waste Management’s elevated payout ratio of nearly 70% over time. All three players are undervalued on a discounted cash-flow basis, with Republic offering the greatest opportunity for capital appreciation among the three, in my opinion.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
From our Blog
- 15 items That You Should Either Recycle Or Thrown In The Trash October 5, 2016
- What to Ask When Looking for a Waste Collection Provider October 3, 2016
- Why You Need a Dumpster September 21, 2016
- Neighborhood Togetherness Matters & Clean Up Does, Too September 19, 2016
- What Waste Should You Recycle And Throw In The Trash? August 3, 2016
- Dumpster Rentals for Business Owners August 1, 2016
- Picking a Dumpster for Your Next Roofing Project July 19, 2016
- Consequences of Illegal Dumping and Littering July 13, 2016
- How To Dispose Of Debris? June 14, 2016
- When Is A Good Time To Clean Out Your Waste? June 13, 2016
2011 2012 Announces best Call Clean Company Conference Connections Covanta diving dumpster dumpsters Energy Ewaste Garb garbage Harbors Holding Identity Inc. Industry Landfill Management Plant power Present Progressive Recycling Release Rental Reports Republic Second Services Solutions Stericycle stock Third TRASH TriTech Veolia Waste yard Year
- Dumpster Diving for Gourmet Pig Feed – Novella Carpenter July 10, 2011
- A Shout Out To Eating Garbage: Dumpster Diving on CBC September 17, 2011
- MythBusters – Dumpster Diving Trailer July 16, 2011
- Kris Kemp: Dumpster Diver August 21, 2011
- What should happen after my character gets beat up? June 6, 2011
- Frugal TV – Dumpster Diving for Coupons June 11, 2011
- Dumpster Dive (Director Commentary) September 24, 2011
- Dumpster Divers Spark Palin Probe September 11, 2011
- Auburn-Placer 1 yard dumpster June 8, 2011
- Can Opener? We don’t need no stinking can opener! June 19, 2011