Waste Management's Tough 2011

The year is coming to a close, so it's a great time to take a look back at the companies you own and how they fared in 2011.

For investors, 2011 was not a stellar year to own Waste Management (NYSE: WM  ) . On the bright side, the company has returned more cash to shareholders through dividends and share buybacks than it had at this point in 2010. However, the stock has lagged the none-too-impressive performance of the S&P 500.

Source: Yahoo! Finance.

But a stock's performance doesn't always tell the story of how the company performed, so let's take a closer look.

A quick look at Waste Management

Market Capitalization $14.3 billion
Total Year-to-Date Stock Return (12.4%)
1-Year Net Income Growth 3.4%
Trailing Price-to-Earnings Multiple 15.1
CAPS Rating *****

Sources: S&P Capital IQ and Motley Fool CAPS.

What went down in 2011
A lot of conservative investors are drawn to waste collectors like Republic Services (NYSE: RSG  ) , Waste Connections (NYSE: WCN  ) , and Waste Management during tough times because they figure that trash collection is something that consumers and businesses can't stop using. And to a very large extent, that's true. However, that doesn't mean that the industry is impervious to economic slumps.

A key issue for Waste Management in 2011 was the economy. While we have seen the economy stumble back to life to some extent, Waste Management has struggled with volume in key areas of its business, including residential and commercial trash collection. At the same time, economic pressures affect pricing as municipalities, businesses, and consumers get more price sensitive.

The company also continued to make investments in 2011 that are aimed at boosting the bottom line. Growth initiatives like waste-to-energy, single-stream recycling, and health-care waste services all target growing profit through expanding the overall business. Meanwhile, it's also sinking money into cost-saving initiatives that management hopes will pay off down the road through more efficient operations.

Throw together a tougher operating environment and increased spending -- even if it's growth-oriented spending -- and some investors are likely to get spooked. For those with a shorter-term view, the soft results today can overshadow the potential for sunnier days down the road. However, 2011 didn't look all bad by the numbers -- through the first nine months, net income edged up 3.4% and for the second and third quarters the company's return on equity exceeded 15%.

No waste here
The bottom line is that though Waste Management's stock didn't have a great year, and the company did face some economic headwinds, this remains a very stable, high-quality company. And Waste Management shareholders don't have to depend on Mr. Market for all of their returns because the company pays a nice dividend -- currently, the stock yields 4.4%.

Of course, Waste Management is hardly the only stock that pays its investors through dividends. You can check out 11 other high-quality dividend picks by grabbing a free copy of The Motley Fool's special report, "Secure Your Future With 11 Rock-Solid Dividend Stocks."

Motley Fool newsletter services have recommended buying shares of Waste Management and Republic Services. Motley Fool newsletter services have also recommended creating a write covered strangle position in Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Waste Management, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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