Wednesday, October 3, 2012

Waste Management Inc. (Getting paid to wait)

Waste Mangement Inc. (WM)

As a dividend stock investor when I buy a company’s stock I usually look to hold it for a long period of time. I don’t mind waiting if I am getting paid a dividend while I wait. I currently own Waste Management Inc. (WM) and will take a look if adding more at current prices. This can also be a guide for someone new looking for a solid company and doesn’t mind being paid a dividend while waiting for margins to improve.

The company currently has a yield of 4.5% making it look attractive for an investor. Taking a look at the last five years a $1000 investment today would be worth $955.80 or an annualized ROR of -1.2%. Taken dividends into account the amount would be $1,091.31 or 2.4% annualized ROR. This shows the importance of dividends and purchasing a stock at the correct time. During this time the P/E ratio has been 16.4 and is currently 14.8. The average dividend growth during this time is 4.5%. This company will never be a high growth stock. I don’t expect any problem with the company maintaining its dividend even with its current payout ratio of 72%. The estimated EPS is 2.15 and if the company were to maintain its payout ratio or a 70% payout ratio the current dividend would be raised from 1.42 a share to 1.50 a share. The 70% is at the high end I would like to see a dividend growth stock.

Many people take short term view of the market and companies. When quarter earnings do not meet expectations the stock will suffer. Looking at WM’s second quarter earnings call this may have been an overreaction. The company had a negative $0.03 a share due to electricity prices. And in the first half of the year had headwinds in recycling and waste-to-energy this is also predicted for the second half of the year with another $0.07 a share revision. Management expects this to improve as commodity prices rise. The company is also moving there fleet of vehicles to CNG which will help other expenses as well the environment. The full year guidance is still $2.15 to $2.20. This could also change through the year and the next earnings call is 10-30-2012. It is a positive that management is looking to the future and is working on the problems.

A few future positives could be in the housing sector recovery. WM can benefit from opportunities with more residential customers and disposal for construction and other jobs. The 10 year Treasury note is under 2% compared the 4.5% current yield. The company will have a floor as the dividend rises, more people will keep it from falling to far in my view. What are your views? Does WM deserve consideration moving forward?

Disclaimer: This is a personal weblog. The opinions expressed here are my own. All data and information provided on this site is for informational purposes only. Please do your own research before investing.


  1. I think Wm is trading at attractive levels and the company has a solid business model. Unless waste management starts huge operations in other countries I don't foresee tremendous growth. But~ if management continues cutting costs and improving margins I can see the growth of profits on the horizon.

    1. I agree the company couldn't of changed from one month ago but the price has became attractive.

  2. I'm really close to pulling the trigger on this one. Their payout ratio is awfully high though. I doubt there will be big raises. But at a 4.5% yield it doenst have to be big raises.

    1. Hi, yes the payout ratio is getting high which will limit their dividend raises. I like the starting yield you are right for a while there will be smaller raises to the dividend. This won't be so bad as long as they move the company in the right direction. Thanks for commenting


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