Please ensure Javascript is enabled for purposes of website accessibility

Waste Management's 10% Dividend Boost Lights a Fire Under the Stock Price

By Motley Fool Staff - Dec 20, 2017 at 5:17PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares hit an all-time high Friday.

In this segment of the Motley Fool Money podcast, host Chris Hill, Million Dollar Portfolio's Jason Moser and Matt Argersinger, and Total Income's Ron Gross dig around a bit in Waste Management's (WM 1.75%) numbers to find what makes it such a strong company and a profitable investment. One clue: the big disparity between its top line growth and its EPS growth.

A full transcript follows the video.

This video was recorded on Dec. 15, 2017.

Chris Hill: Shares of Waste Management hit an all-time high on Friday after the company announced it would increase its quarterly dividend nearly 10%. Jason, Waste Management is one of those companies that's easy to miss because it really isn't the sexiest business in the world.

Jason Moser: Oh, come on, cue the sexy music, man. This is trash collection. There's nothing like getting that stuff out on the curb on a nice morning and coming back and knowing that it's not there anymore. Listen, at first glance, you look at this company and you look at the top line growth they're bringing in, and you think, why would I consider investing in this? Five years, it's about 1% annualized. But then you look at the bottom line, and they're obviously doing something right, because it's growing at about 10% annualized on the earnings per share number. And I think it's because of a few things. It's a model that spits out a lot of cash. And that cash can be used to pay a dividend, which they do, it can be used to buy back shares, which they do. This is a very heavily regulated industry. There's tough barriers to entry not only on the regulation side but on the economics side as well. Shares are yielding $1.86 per share now, which is better than 2%. This is the 15th consecutive paraphrasing that dividend. I have a feeling they're gunning for 25. They want to be one of those dividend aristocrats. And trash is an extremely reliable market. It's happening like the sun comes up. I think, if you're looking for an income-style play, this is a stock you always have to have on your watch list.

Ron Gross: I completely agree from an income perspective. I wonder what a company like that could do to increase those margins, though. Like you said, top line not so impressive. Bottom line better. Fuel comes to mind, I could see, although that'll be a cyclical up and down thing. I wonder how else they can squeeze additional dollars on the bottom line from the top.

Moser: Depending on the regulation side, it's a matter of how much pricing power they can exert over time. But I don't know if that's fully under their control.

Hill: Is it safe to assume that if corporate taxes are cut, that greatly increases the chances they keep their dividend streak going?

Moser: Oh, I think that's for sure. A tax cut is probably going to result in a lot of these companies buying back a lot of their shares, too, which probably won't be too bad of a thing, though I'm sure some companies will figure out a way to screw it up.

Hill: We'll see if Adobe does that with their stock at 40X forward earnings.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Waste Management, Inc. Stock Quote
Waste Management, Inc.
$155.65 (1.75%) $2.67

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.