1 Dividend You Don't Want to Trash

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Waste Management (NYSE: WM  ) reported earnings today, and Mr. Market seems satisfied for the time being. Read below for what worked, what didn't, and where this company -- and its 4.4% -- dividend  might be headed in the not-so-distant future.

Number crunching
Waste Management reported sales of $3.46 billion, down 1.7% from last year's Q3 sales of $3.52 billion.

Although sales remained steady, income got trashed. The company scrapped together $214 million, or the equivalent of $0.46 diluted earnings per share. Compared to last year's $272 million third quarter, that's a 21% drop in income. The main culprits: a $32 million restructuring/union dispute, and $39 million worth of "investing impairments."

Luckily for the company, Wall Street wasn't expecting much better. Analysts predicted $0.60 diluted EPS in pre-tax income, and Waste Management's $0.61 earnings proved to be on the money. Revenue came in shy of Wall Street's $3.5 billion, but the $40 million seems to have been forgiven, judging by the stock's 0.9% increase today.

Digging deeper
In what can best be described as an Achilles' heel moment for this company, the company revealed its strengths and weaknesses this quarter.

Waste Management makes a business out of finding value where others don't, but that value can fluctuate. "Commodity price declines in our recycling and waste-to-energy operations led to a $0.10 year-over-year EPS negative impact," said President and CEO David Steiner.

In plain English, this means that the company's foolproof plan to sell people's trash back to them as either raw material or energy didn't work out so well. Average prices dropped 40% in a year, resulting in a $0.08 diluted EPS decline.

It's not that Waste Management did anything wrong, but decreasing commodity demand, and increasingly cheap energy sources -- (did someone say natural gas?) -- have pushed Waste Management's bargain bin back into the trash.

But even if people aren't buying, Waste Management's still collecting. Luckily for this company, they're collecting more than before. Collection and disposal yields improved sequentially for the first time in six quarters, providing immediate collection revenue and potentially lucrative materials for resell down the road. Operations, excluding commodity price impact, increased $115 million, or 3.3%, over 2011's third quarter.

...and the dividend?
Let's not beat around the recycling bin. Investors in Waste Management love the company's 4.4% dividend yield, and any signs of a reduction could cause shareholders to trash this stock. Waste Management doled out $164 million in dividends last quarter, putting its current payout ratio at a reasonable 70%. Let's see how it stacks up to other waste companies:


Dividend Yield

Payout Ratio

Debt-to-Equity Ratio

P/E Ratio

Waste Management





US Ecology (Nasdaq: ECOL  )





Republic Services (NYSE: RSG  )





Waste Connections (NYSE: WCN  )





Stericycle (Nasdaq: SRCL  )





Clean Harbors (NYSE: CLH  )





Source: e*

Looking at the dividend yield alone, Waste Management wins by a long shot. Considering the payout ratio, however, all three dividend players are actually on fairly common ground.

If US Ecology, Republic Services, or Waste Connections wanted to increase their dividends to 4.4%, they could increase their payout ratio to around 70%, and meet Waste Management's market-leading yield. When you consider the higher debt of Waste Management, the possibility becomes even more likely.

But there's no denying Waste Management's scale advantage. With annual revenue of $13.4 billion, it sweeps away Republic Services' second place $8 billion.

And, even though its debt-to equity ratio is the highest of the bunch, the company's financials are solid. It's on track to meet or exceed its 2012 free cash flow estimates, and continues to allocate a substantial amount of money into necessary capital expenditures.

Foolish bottom line
Waste Management is not full of surprises. It's a steady company with a nice-sized dividend and a growing supply of someday-valuable trash. The company's not afraid to restructure or innovate when needed, but its primary strength is still its ability to handle what we don't want to. I was long Waste Management yesterday; I'm long today. And chances are that I'll still believe in the company tomorrow.

Waste Management's not the only dividend dynamo out there. The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here to discover the winners we've picked.

Justin Loiseau has no positions in the stocks mentioned above. The Motley Fool owns shares of Clean Harbors and Waste Management. Motley Fool newsletter services recommend Republic Services, Stericycle, and 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. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2087214, ~/Articles/ArticleHandler.aspx, 10/23/2016 2:23:23 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:02 PM
WCN $74.36 Up +0.34 +0.46%
Waste Connections CAPS Rating: **
CLH $45.29 Down -0.71 -1.54%
Clean Harbors CAPS Rating: **
ECOL $42.50 Up +0.35 +0.83%
U.S. Ecology CAPS Rating: *****
RSG $49.93 Down -0.05 -0.10%
Republic Services CAPS Rating: *****
SRCL $74.78 Up +0.10 +0.13%
Stericycle CAPS Rating: ****
WM $62.21 Down -0.23 -0.37%
Waste Management CAPS Rating: *****