Sometimes you have to look into some of the most boring under-the-radar industries to find above-average dividend stocks. True, no one is playing waste management stocks for price appreciation, but these companies sure know how to return cash to shareholders.
Few industries are as slow moving as waste management, but then, that’s part of the appeal for anyone looking to find dependable, generous dividend stocks.
The business of turning trash into cash is so boring you can bank on it. Indeed, strong and steady cash flow and low volatility make stocks in the sector pleasantly safe and dull.
Here’s a look at three dividend stocks in the waste management industry that would be anything but garbage in your equity-income portfolio:
Dividend Stocks – Waste Management (WM)
Market Cap: $22 billion
WM Dividend Yield: 3.2%
With a market cap of more than $20 billion, Waste Management (WM) is by far the biggest dividend stock in the business of hauling trash — and it has been a rock-solid returner of cash to shareholders.
WM stock — recently upgraded by Stifel to “buy” from “hold” — isn’t just hitting 52-weeks highs; it’s at levels last seen at the end of the 1990s.
True, WM stock is up just 5% for the year-to-date, but add in the dividend, and the total return comes to more than 8% — more than competitive with the broader market, especially adjusted for risk. Indeed, with a beta of less than 0.5, Waste Management is less than half as volatile as the S&P 500, which means WM stock will help keep your portfolio afloat when stocks are selling off.
Waste Management recently sold its trash-to-energy subsidiary for nearly $2 billion in cash to focus on its core disposal business — and give more cash back to shareholders. Additionally, Waste Management is currently running a $600 million program to buy back WM stock.
Dividend Stocks – Republic Services (RSG)
Market Cap: $14 billion
RSG Dividend Yield: 2.9%
Republic Services (RSG) is the second-largest waste disposal stock after Waste Management, but it’s definitely topping WM in the performance department. RSG stock is up 18% for the year-to-date on a price basis and recently notched an all-time high. Throw in the healthy dividend that still sits near 3%, and the total return more than doubles that of the S&P 500 so far this year.
Republic Services has enjoyed a bunch of good news recently, from winning long-term contracts from its biggest competitor to better-than-expected second-quarter earnings. Indeed, Republic Services hiked the dividend on RSG stock when it reported quarterly results.
Republic Services isn’t stingy with its steady cash flow when it comes to share buybacks, either. The company is in the midst of a share repurchase program where it will buy $400 million of RSG stock. It might play second string to Waste Management, but RSG is among several dependable dividend stocks you can count on for total return.
Furthermore, with a beta of 0.5, RSG stock is half as volatile as the broader market, giving it buoyant characteristics when stocks are selling off.
Dividend Stocks – Covanta Holding (CVA)
Market Cap: $2.9 billion
CVA Dividend Yield: 3.4%
With a market cap of less than $3 billion, Covanta Holding (CVA) is a lot smaller than the big boys, but it also pays the biggest dividend. When it comes to dividend stocks, you shouldn’t turn up your nose at anything over 3% — at least not in the current Treasury environment.
Despite the mid-cap size of CVA stock, Covanta is one of the largest waste collectors in the U.S. thanks to a host of long-term municipal contracts. More importantly, those contracts help ensure a strong and steady stream of cash.
The other prongs of Covanta’s strategy include selling energy — either by generating it from waste or selling the fuel — and recycling. That balanced approach to revenue helps insulate it against price weakness in any one area.
CVA stock is up 20% on a price basis for the year-to-date, beating the broader market by about 12 percentage points. And don’t forget that CVA stock has done that with modest risk. The beta of 0.5 means it will lag the market when stocks are headed in the wrong direction.
As of the writing, Dan Burrows did not hold a position in any of the aforementioned securities.