Perhaps it’s because the trash-hauling biz lacks gleam and glamour, but social-media commentators don’t talk much about Waste Management (NYSE:WM). That’s a shame because it’s a tremendously lucrative industry and WM stock has the potential to be a serious moneymaker.
The company purports to have “recession-resilient revenues” and you may have heard similar claims from other firms. Yet, in the case of Waste Management there could actually be some truth to this ambitious claim. America is mired in a recession right now and Waste Management’s financials are fairly solid.
The company is a long-standing leader in a surprisingly profitable market that remains underappreciated. Moreover, WM is a dividend-paying stock that should spark the interest of any long-term income-seeking investor.
A Closer Look at WM Stock
So, let’s start with that dividend. Waste Management boasts 17 consecutive years of dividend increases and strives to achieve a 40% to 50% payout of the company’s free cash flow. Currently WM stock’s dividend yield is 2.1%, which isn’t too shabby amid an economic recession.
As for the claim of recession resiliency, WM did hold up relatively well in 2008. The shares dropped from the $34 area to $25 and change during that year, but by mid-2011 WM shareholders recovered their losses and then some.
Has WM exhibited resiliency during the current recession? Somewhat, but not to a spectacular extent. During the past year, WM shares topped out at $126.79 in February, plunged to $85.34 in March, and stand at the $105 level as of July 13.
Thus, the recovery from the novel-coronavirus crash remains incomplete. That, however, could be viewed as an opportunity to cash in on the upside potential of WM stock. The bullish thesis would be that the shares will fill the gap and reclaim $126 in due time.
Cash from Trash
Being the eminent American garbage-collection bellwether might not sound like much of a title. There’s nothing stinky about the trash-hauling market, though. You might be surprised to discover how much capital can be generated from the refuse-disposal business.
Just the medical-waste-disposal niche alone offers blockbuster revenues. According to a report sourced from Stratistics MRC, the medical-waste market is projected to grow to $18.9 billion by 2024.
Furthermore, Practice Greenhealth reports that hospitals in the United States produce over 5 million tons of medical waste annually. In the midst of a pandemic, medical waste management could be a big-money business for months or even years to come.
And don’t expect a slowdown in the broader waste-management industry anytime soon. As Global Market Insights, Inc., reports, municipal solid-waste management in the U.S. is projected to be a $16 billion market by 2026. For the foreseeable future, then, Waste Management is a right-place, right-time market leader.
No Garbage in These Financials
Even prior to the pandemic, Waste Management was hauling some serious revenues. To be more specific, the company generated $15.4 billion in revenues last year. That marks an improvement of 3.6% compared to Waste Management’s revenues in 2018.
As the coronavirus pandemic reached America, Waste Management’s business model remained firm. Chances are pretty good that you may have seen those garbage trucks with the big letters “WM” on the side. They just kept on moving even while many other businesses were shut down.
That’s commendable, as are Waste Management’s first-quarter fiscal results. During that period, the company posted $3.7 billion in revenues, a year-over-year increase of 7%. Not only that, but Waste Management recorded $361 million in quarterly net income, which is 4% better than what the company reported for the comparable quarter of the prior year.
The Bottom Line
Closed-minded investors need to open up to the idea that there’s nothing trashy or disreputable about the waste-management business. A long position in WM stock deserves your consideration as you can collect dividends while Waste Management collects our refuse.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
