On August 1, 2011 I wrote that investors should take advantage of Waste Management’s yield (Time To Take Advantage of Waste Management’s Yield) which was above 4%. Ironically, the stock was trading at $ 31.50 at the time I wrote that article, which is the same price it closed at on Friday. In the meantime Waste Management hit a 52 week low of $ 27.75 before shooting up to a recent high of $ 34.68. Despite the stock’s volatility, one thing remains stable, an excellent dividend yield.
Once again Waste Management’s yield has been pushed above 4% on recent price weakness. The company reported Q3 earnings on October 27th. Earnings per share came in at $ 0.63, better than the $ 0.61 expected. Revenue of $ 3.52 billion was slightly better than expectations. Waste Management also reaffirmed its (lowered) full year 2012 EPS guidance of $ 2.14-$ 2.18. Despite the solid report, the stock sold off. As stocks often do, Waste Management has given investors a second opportunity to buy in at a high dividend yield.
Shares of Waste Management trade at 13.35 times forward earnings. Waste Management’s price/sales ratio is a reasonable 1.11. The quarterly dividend has grown at an annualized rate of 4.3% over the last five years. The dividend is comfortably covered with a payout ratio of 65%.
As I wrote previously, a high, sustainable dividend yield can support a stock’s trading price. Waste Management’s yield is virtually double that of a ten year treasury note. Although not recession proof, garbage collection and management is recession resistant. Waste Management is the largest waste management company in the United States. The company has a history of swallowing smaller competitors to add volume and reduce competition.
The bottom line is that the market has given investors another opportunity secure a stable 4% yield in a “best of breed” company.
Disclosure: I am long WM.