by Susan J. Aluise | June 20, 2014 11:00 am
You know the old saying “One man’s trash is another man’s treasure”? Well, if you’re looking for solid returns and dividend income, you don’t have to go dumpster diving to win big — you just need to invest in the right waste management stocks.
Granted, the process of hauling and storing garbage is no one’s idea of sexy. It is, however, one of those things you can’t do without — like food, heat and power. That inoculates waste management stocks from the fits and starts that plague consumer cyclicals.
And waste management stocks will continue to flourish as long as humans keep generating trash (so, for a very, very long time). Consider that in 2012, Americans generated about 251 million tons of trash and recycled and composted almost 87 million tons of this material, according to the Environmental Protection Agency. That translates to a gigantic job that somebody has to tackle — giving waste management stocks a big opportunity that keeps growing.
Additionally, some of these stocks pay dividends, which
Here are three waste management stocks to buy now:
Operating Margins: 15.2%
Current Dividend Yield: 3.4%
Waste Management (WM) is the 800-pound gorilla among waste management stocks, with more than 20 million customers in the U.S. and Canada. WM also boasts the nation’s largest network of recycling facilities, transfer stations and landfills to business and residential customers.
But WM’s value proposition is not all about trash removal: It also plays in the renewable energy space by recovering the gas that is emitted from landfills and turning it into electricity. By the end of 2012, WM had 138 active landfill gas projects that generated enough electricity to power nearly 500,000 homes.
And Waste Management is building on its renewable energy plans. Earlier this year, WM formed a joint venture with Ventech Engineers International LLC, NRG Energy (NRG) and Velocys plc (OXFCF) to produce renewable fuels and chemicals from biogas and natural gas using smaller-scale gas-to-liquids technology.
There’s a lot to like about WM stock — the company has a strong track record of boosting shareholder value through share repurchases and steady (albeit not massive) dividend increases. While it’s a bit overvalued based on forward price-to-earnings and price/earnings-to-growth (17 and 2.9, respectively), Waste Management is a good, stable, buy-and-hold stock with growth opportunities in the energy space.
Operating Margins: 16.1%
Current Dividend Yield: 2.8%
Republic Services (RSG) operates in about 80% of the U.S., as well as Puerto Rico, spanning some 336 collection operations, 199 transfer stations, 190 active landfill operations and 64 recycling facilities.
In an interesting twist, RSG tapped former airline executive Robert Maruster to be its new executive VP and chief operating officer earlier this month. Maruster, who has held senior positions at JetBlue Airways (JBLU) and Delta (DAL) will be in charge of RSG’s expansive field operations, the company said.
Also of note, Bill Gates’ Cascade Investment, which already had a significant investment in RSG stock, acquired an additional 221,382 shares on June 12 for $8.1 million.
From a business perspective, Republic Services is focusing heavily on the advantages of natural gas-fueled vehicles. The company has had some negative PR in the past two weeks due to fires at landfills in Michigan and Nevada, but RSG stock still is up more than 12% year-to-date, so clearly confidence.
Its fundamentals are similar to Waste Management’s — RSG stock has a PEG ratio of 2.9 and a forward P/E of more than 17, which indicates that it could be overvalued. But also similarly to Waste Management, its strong place in the sector (and a broader focus on replacing its fleet with natural gas vehicles) will continue to lift this waste management stock.
Operating Margin: 10.55%
Current Dividend Yield: 2.2%
The Toronto-based Progressive Waste Solutions (BIN) provides solid waste collection and disposal services to customers of just about every stripe.
In the U.S., Progressive operates 85 collection operations, 48 transfer stations, 22 landfills, 29 municipal recycling facilities and four landfill gas-to-energy facilities. In Canada, it has 41 collection operations, 19 transfer stations, eight landfills, 21 municipal recycling facilities and one landfill gas-to-energy facility.
BIN has a strong track record of growth through acquisitions — particularly those that mesh with its existing service footprint. Management often has said that the generation of free cash flow is the key to creating shareholder value. The company also will continue to buy back BIN stock.
Meanwhile, Progresive also is bullish on adding compressed natural gas vehicles to its fleet. The company recently estimated that in 2014, 50% to 55% of the replacement vehicles it purchases in the U.S. and Canada will be CNG-fueled. BIN is focused on optimizing local markets and has launched a series of new training programs and tools. This more targeted approach to local markets begun to deliver results.
BIN stock recently touched all-time highs and has registered a modest 5% year-to-date gain. It too is reading overpriced — at a PEG of 3.2 and a forward P/E of more than 20, which is one of the highest in the sector — but there’s still value here, especially as Progressive Waste Solutions continues to win local contracts.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.
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