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This Company is like an Energy Industry Tech Incubator

Covanta (NYSE: CVA  ) makes power from trash. Solazyme (NASDAQ: SZYM  ) and FutureFuel (NYSE: FF  ) focus on bio-diesel. Waste Management (NYSE: WM  ) does both. That makes this dividend paying stalwart a one-stop shop for high-tech alternative energy investing.

Powering up
Covanta gets paid to pick up trash, paid for the recyclables it pulls out, and paid for energy it produces from burning trash at its over 45 waste to energy facilities—otherwise known as power plants. It's a relative small fry, producing 1,500 megawatts of power, but it's making money off of your trash every day.

Although Sam Zell-backed Covanta might seem unique, Waste Management is doing the same thing. It just isn't doing it at the same scale, yet. The country's largest trash hauler has just 17 waste-to-energy plants; not as big as Covanta, but there's plenty of opportunity for growth.

(Source: GTD Aquitaine, via Wikimedia Commons)

Covanta, for example, handles a total of around 20 million tons of waste a year or roughly the volume of just Waste Management's recycling business. (For reference, Covanta recycles around 450,000 tons of metal a year.) Waste Management's waste-to-energy plants took in 7.5 million tons of waste last year.

Unfortunately, volume isn't the only factor in the equation. For example, low power prices led Waste Management to write down the value of its waste-to-energy division in 2013. Covanta's bottom line bled a nickle of red ink over the same time frame That's not exactly a good sign for Waste Management or Covanta, but turning garbage into power will likely be an increasingly valuable alternative to shoving trash in a landfill over time. After all, there are only so many landfills around and no one (no one!) wants a landfill in their backyard.

If you have to put it in the ground
That said, if you are shoving refuse into a landfill, why not make some energy from that, too? That's exactly what Waste Management does at nearly 140 landfills. And it just inked a partnership with NRG Energy (NYSE: NRG  ) and several private companies to take the gas from its landfills and turn it into liquid fuels and chemicals.

NRG is no stranger to cutting edge energy projects like this. It is a partner in the giant Ivanpah solar installation (so large you can supposedly see it from outer space). And it just bought a rooftop solar power company that, effectively, helps utility customers generate their own electricity. So working with Waste Management to turn landfills into energy sources is right up the company's alley.

(Source: Aioannides, via Wikimedia Commons)

The first project between Waste Management and NRG is being developed right now, with a final green light expected later in the year. This is a different take on what Solazyme and FutureFuel do today. Solazyme uses algae to turn waste like corn husks into bio-fuel. FutureFuel takes in such lovely leftovers as pork lard. Neither, however, is focused on turning human trash into energy the way Waste Management is.

Interestingly, in FutureFuel's annual report it warns that it might exit the bio-fuel market in the business description section. A relatively small company, it lacks the staying power of a giant like Waste Management. Note that Solazyme, while also a small company, has big name partners like the U.S. Navy and Archer Daniels Midland (NYSE: ADM  ) . That said, unlike FutureFuel, it isn't making any money. This pair's technology may be exciting, but it certainly isn't proven just yet.

Riding the razor's edge
Investing in cutting edge technology isn't for most conservative investors. However, if you want to be at the cutting edge of the energy market, you might want to take a look at Waste Management. It's the nation's largest trash hauler, which gives it a solid core business. And it's using its trash expertise to innovate in the energy market in the same ways that smaller, more focused companies are.

If you are a conservative investor, think of Waste Management as a refuse company running an energy technology incubator. That, and a 3.7% or so dividend yield, are a pretty compelling reasons to own what some would consider a boring company.

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Read/Post Comments (4) | Recommend This Article (4)

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.

  • Report this Comment On April 07, 2014, at 12:24 PM, Leviathon40 wrote:

    Mr Brewer, I enjoyed the article, thanks. I would recommend that you investigate Solazyme a bit further, as your assertion that they are "focused on biofuel" is way out-of-date. They have progressed far beyond that and biofuel is not a primary concern for them at this point.

  • Report this Comment On April 07, 2014, at 5:02 PM, techpatriot wrote:

    Waste Management is one of those nice, boring dividend stocks you want to buy in your twenties and put away as well as an ideal stock to own in your fifties and sixties.

    I'd personally consider it a buy under $40 (for safety reasons).

    I admit I know nothing about Covanta.

    Solazyme I know quite a bit about. IT is anything (maybe I should say everything?) BUT a biodiesel stock.

    You are either operating on very old information, or have been misled on SZYM.

    Solazyme is to biofuel companies like 3D printing companies are to paper and ink printing companies.

    Solazyme is a renewable oils and bioproducts company which utilizes a heterotrophic microalgae technology platform to convert low-cost sugars into tailored oils. Expensive, high demand tailored oils I might add. It is also into high end lubricants, food and even the cosmetics markets.

    Solazyme realistically has a good shot to be the GE of industrial and consumer bioproduct companies, the Intel (or maybe the Qualcomm?) of this developing bio space. And in the end, if it becomes more financially lucrative, they might also choose to make a little biofuel too....

    Other than that, your concept premise on Waste Management seems pretty solid.

  • Report this Comment On April 07, 2014, at 6:01 PM, Jahuel wrote:

    As the other two commentors pointed out - Solazyme is an oil company. That so many "experts" see the word oil and assume they primarily do biofuel is sad (Jim Cramer included).

    Please do actual research on companies beyond a Wikipedia article or Google search before reporting on them, and spreading misinformation.

  • Report this Comment On April 11, 2014, at 3:21 PM, MayaPinion wrote:

    Not sure why the single, erroneous sentence about Solazyme is in here. I was expecting to read at least something about Solazyme - but pbbbt! - nothing!

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Reuben Brewer

Reuben Gregg Brewer believes dividends are a window into a company's soul. He tries to invest in good souls.

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