When it comes to investing, it's risk that keeps us up at night. There's no way to completely remove it from the equation, of course, but you can build your portfolio in such a way that it's less of a concern. One way that risk-averse investors can do that is to buy companies such as Waste Management (WM -0.52%), Consolidated Edison (ED 0.63%), and Enterprise Products Partners L.P. (EPD 0.18%), which provide basic services for which demand is fairly constant and not likely to go away. Here's what you need to know to get started.
Taking the trash out
Waste Management is one of the largest trash haulers in the United States. It's not an exciting business, but it is vital to the ebb and flow of modern life. After all, the trash doesn't just disappear after you put it at the curb. Someone has to pick it up and then do something with it. That someone is a company like Waste Management.
Image source: Getty Images.
Its business consists of two main parts -- trash collection and recycling (combined, about 70% of the business) and landfills (around 20%) -- with the rest of operations grouped into the "other" category. Trash collection and recycling are generally driven by long-term contracts, so, although the top and bottom lines can fluctuate a little with the economy, Waste Management's core revenues will be running on autopilot no matter what is going on in the world. Landfills, meanwhile, are valuable assets because no one really wants to see a new landfill built in their backyard. The advantage for Waste Management is twofold: It can use its own landfills, but it also gets to charge others for using them.
In fact, Waste Management has one of the largest waste-related networks in the country. It would be virtually impossible for competitors to replicate what this company has created, giving it a material competitive advantage. Underscoring the consistency of the business, meanwhile, is the fact that the company has increased its dividend for 14 consecutive years. If you don't mind owning a little trash in your portfolio, Waste Management's 2.3% yield might be for you.
Powering the Big Apple
Next up is Consolidated Edison -- the electric and gas company that helps keep the lights on in New York City, the city's relatively wealthy suburb of Westchester, and parts of rural New York and New Jersey. The company also sells steam in New York City for heating/air conditioning buildings. Con Ed serves a power-hungry region that is a global hub for business and tourism. And since electricity is a regulated business here, there's no competition to unseat Con Ed from its NYC monopoly.
Having adapted to changes in the power market, at this point Con Ed focuses on delivering power, not generating it. As long as customers still have wires heading to their homes, Con Ed will get its cut. And because of the nature of New York City housing, which is heavy on multilevel apartments, Con Ed isn't at risk of distributed power generation (solar panels on residential rooftops) taking a huge bite out of its profits anytime soon. But Con Ed isn't sitting still here, either: It has its own clean energy division that's investing in large-scale solar and wind power projects. It's no wonder, then, that Con Ed has amassed an impressive 43-year record of annual dividend hikes.
Con Ed has big spending plans. Image source: Consolidated Edison.
As a regulated entity, however, Con Ed has to ask the government to approve its price increases. But because infrastructure is such a vital piece of the power market, regulators tend to look kindly on spending on improvements and are generous with rate approvals. Con Ed's business is to manage that infrastructure, and the company has roughly $11 billion worth of spending planned over the next three years or so. This 3.3% yielder looks poised for slow but steady growth -- and that's just the type of story that helps risk-averse investors sleep at night.
The big yield
Enterprise Products Partners is one of the largest midstream energy companies in the country. It owns the oil and natural gas pipelines, processing facilities, storage operations, and even ships that help move these fuels from where they are drilled to where they finally get used. In essence, this is a toll-taker business, which means that demand for oil and gas is more important than the price.
To illustrate this: Despite the severe and prolonged drop in oil price that began in mid 2014 (it fell from over $100 a barrel to around $30 at the nadir), Enterprise's EBITDA held up relatively well. And the limited partnership kept increasing its distribution every quarter, even through the worst of the downturn. The company has increased its annual distribution for 20 consecutive years. The quarterly streak is up to 51 consecutive quarters. Enterprise covered its distribution by 1.3 times in the first quarter, giving it plenty of room to keep hiking the payout. The yield is currently around 6%.
EPD EBITDA (TTM) data by YCharts.
That said, as in Con Ed's case, growth at Enterprise is about spending -- specifically, spending to expand an already vast network of assets. Enterprise currently has roughly $8.4 billion worth of growth projects planned between now and 2020. Put another way, expect the partnership's slow and steady growth to continue. And you can collect a fat yield while sleeping well at night.
Put them all on your list
If you like to sleep well at night, the category of companies that operate businesses providing critical services is a great place to start looking for investments. Waste Management, Con Ed, and Enterprise all do just that. The story at each is slightly different, of course, but one of the core similarities is that the stability of their businesses has helped them create impressive dividend histories. If you are a risk-averse investor, you should take the time to do a deep dive on each.
