When a huge, reliable dividend payer suddenly turns into a rocket-fueled growth machine, it can take you by surprise. Certainly, not many were expecting North America's top trash hauler and landfill operator, Waste Management (WM 0.94%), to turn into a turbocharged stock that's more than doubled the S&P 500's return over the last five years. 

But that's just what's happened. The share price is at an all-time high. Revenue is at an all-time high. Net income and free cash flow are near all-time highs. But, like someone who hears the garbage truck outside and starts racing their trash can to the curb, you might wonder: Is it too late?

Let's take a closer look to find out.

A garbage truck with a mechanical arm empties a trash bin

Waste Management has seen explosive growth in recent quarters. Image source: Getty Images.

Big and getting bigger

Waste Management is by far the largest North American trash company, and it's not even close. No. 2 contender Republic Services (RSG 0.78%) is less than 60% of Waste Management's size by market cap and less than two-thirds its size by revenue. Other contenders are even smaller, especially once Waste Management acquires the No. 4 trash companyAdvanced Disposal (ADSW), in a $4.9 billion deal expected to close this quarter.

Size has its advantages, especially in this industry. Thanks to zoning regulations and residents' reluctance to allow a landfill anywhere near their property, opening a new landfill is anything but an easy task. Acquiring a fleet of trucks to haul trash for a municipality and employees to run them would also be a big undertaking for a newcomer to the field. Plus, major corporate and government clients aren't likely to take a chance on an untested company. Therefore, Waste Management has a huge competitive moat, and it makes the most of it, keeping customer churn to less than 10%. 

Thanks to a growing world population, Waste Management shouldn't run out of trash to haul anytime soon. Trash disposal is also considered to be a recession-resilient business, so folks concerned about a recession should feel safe investing here. And invest they have...which may be a problem.

A question of value

There's no denying that Waste Management is a strong company that's been growing steadily, and that its management team, led by CEO Jim Fish, is executing well. However, growth in the company's share price has outstripped its earnings growth, and that means it's trading at all-time high valuations. The same, incidentally, is true of Republic Services.

Throughout much of 2019, Waste Management's price-to-earnings ratio crept higher and higher, from 16 to 20, to 24, to 28. It's currently sitting at 29.6 -- not quite an all-time high, but on the high end of the spectrum. Looking at other valuation metrics tells a similar story: Its price-to-free-cash-flow ratio of 29.2 is higher than it's been since 2000. Its enterprise value-to-EBITDA ratio of 14.8 is just 1/10th of a point below its highest level since 2000. 

Meanwhile, even though the company has been increasing its dividend every year for the past 17 years, it hasn't been able to keep pace with the share price growth. As a result, the dividend yield has fallen from more than 4% in 2013 to just 1.7% today.

It's certainly not as cheap a stock as it was even a year ago. But is it a buy regardless?

Not a bargain but a buy

In evaluating the stock, I've been saying that I'd have to think long and hard about whether to buy if the P/E ratio went higher than 30. With the ratio at 29.6, we're almost at that point. However, it's important to remember that once the Advanced Disposal transaction closes, Waste Management is expected to immediately see a boost to its earnings and cash flow. That means the current valuation metrics may be artificially high (of course, we won't know for sure until after the transaction closes). 

Even if the metrics are spot-on, though, Waste Management still looks like a long-term buy. Its inherent advantages of scale coupled with an excellent track record of outperformance and solid prospects for continued growth should pay off for investors, even at its current valuation. It's not as obvious of a slam-dunk as it once was, though. And of course, dividend investors looking for high yields should probably look elsewhere.