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Why Waste Management Is Right for Your IRA

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This article is part of our Right for Your IRA series, in which Foolish writers each pick a stock or ETF that could be a great fit in a tax-advantaged retirement account.

As April 17 nears, many investors are scrambling to bulk up their tax-deferred retirement accounts. But not just any stock will do -- a thoughtful choice is more likely to result in maximum profits. You want something with steady growth potential that will take advantage of the account's tax deferral status. Waste Management (NYSE: WM  ) fits the bill, and I'll explain why.

4% dividend yield
Waste Management currently shells out a dividend yield in excess of 4% to investors. On top of that, the company has been increasing dividends for nine consecutive years and has hefty increases planned for 2012. Put those gains into a tax-deferred account, and you won't have to worry about the tax implications that come along with dividend investing -- rather, you'll be out enjoying the sunshine this time next year.

Long-term growth potential
The average American produces 1,600 pounds of garbage each year. And whether it ends up recycled or in a landfill, there will be trash companies around to handle it.

But the options for your garbage go way beyond simply recycling or dumping. Waste Management and competitor Republic Services (NYSE: RSG  ) have recently started converting methane gas to generate electricity. I like Waste Management over Republic because of its seasoned management team and both its larger market share and dividend.

Technologies like that, along with the growing popularity of recycling, leave lots of room for evolution in this industry. And while it's unlikely that Waste Management would ever split its business to narrow in on these specific trends, as it's so far managed them all quite well under the same umbrella, it doesn't hurt to keep this company in your tax-deferred account, just in case.

Industry leader
Waste Management is a great investment for any portfolio because it dominates its industry with a market cap of more than $16 billion. Republic is next in line, sitting at $11.39 billion. Waste management is also a very-capital intensive industry -- it's difficult to start, and even more difficult to keep up with the big dogs. So it should be a long while before investors need to worry that Waste Management will lose its kingly status in this very necessary industry.

I plan on purchasing shares in Waste Management for my IRA as soon as our Foolish policies allow, and I definitely advise you to dig into this company to see whether it would work for your retirement portfolio, too. For more great ideas, check out this free report to Find 3 Stocks That Will Help You Retire Rich.

See what else our Foolish writers would add to an IRA; head back to the series intro for links to the entire series.

Fool contributor Amanda Buchanan holds no position in any company mentioned. The Motley Fool owns shares of Waste Management. Motley Fool newsletter services have recommended buying shares of Waste Management and Republic Services, as well as writing a covered strangle position on Waste Management. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (1) | Recommend This Article (11)

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  • Report this Comment On April 06, 2012, at 1:12 PM, seattle1115 wrote:

    I agree. Another thing I like about WM is that they own a lot of landfills. Even with all the investment WM and its competitors are making in extracting value from the waste stream, there will be a steady need for landfill volume for the foreseeable future, but no one wants something like that in their neighborhood. WM already owns a huge proportion of the nation's landfills, with all permits and infrastructure already in place. It's a huge competitive advantage.

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Related Tickers

8/22/2014 4:06 PM
WM $46.43 Down -0.27 -0.58%
Waste Management CAPS Rating: *****
RSG $39.34 Down -0.21 -0.53%
Republic Services CAPS Rating: *****

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