The quest for undervalued stocks can often take investors to some strange, unexplored corners of the market. However, it is not always necessary to stray far off the beaten path. As Foolish colleague Seth Jayson recently pointed out, sometimes value can be found right underneath our noses. In some cases, though, value may be a little too close to the nose for comfort, at least when it comes in the form of Waste Management (NYSE:WMI), the nation's largest garbage collector.

This morning, the company posted net income of $150 million, or $0.26 per share, a 4.2% increase from the $144 million earned a year ago (excluding a one-time $8 million accounting-related gain). Revenues for the quarter rose 4.9% to $3.04 billion. A modest 1% improvement in volume contributed to the top-line growth, but most of the gains came from stronger pricing, as higher average yields represented 2.1% of the firm's internal revenue growth -- the steepest increase for that key metric in the past five years.

As might be expected, it can be tough to differentiate in the trash hauling business, and Waste Management has had limited success in raising prices. The industry's No. 2 player, Allied Waste (NYSE:AW), has encountered problems as well. Both companies have responded by implementing pricing strategies based on careful, market-driven analysis. Recently enacted fuel charges have also helped mitigate the impact of rising energy costs. As a result, Waste Management was able to push through a solid 3.2% price increase last quarter and was even more successful in raising prices charged to commercial customers.

There's nothing glamorous about the trash business, but demand is almost guaranteed, and no one is better equipped to handle it than Waste Management. The company boasts 27 million commercial, industrial, and residential customers and controls 40% of the nation's disposal capacity. Regulatory scrutiny ensures that permits for new landfills are tough to come by, and Waste Management owns 300 of them -- far more than any other company. As such, the vertically integrated company bypasses some of the disposal fees that other trash haulers are hit with and, in fact, collects some of its own.

Waste Management has been generating bundles of free cash flow, which last year totaled $960 million -- a 32% increase from the year before. Thus far, the new year has been equally productive, as first-quarter free cash flows rose 35% to $420 million, easily on pace to surpass management's 2005 target of $1.1 billion to $1.2 billion. With more than a dime from every dollar of sales filtering down to the free cash level, the company has been able to return plenty of that money to shareholders. During the first quarter alone, shareholders received in excess of $213 million: $100 million in the form of stock repurchases and the rest from a juicy 2.8% dividend yield.

Waste Management is by no means a growth story; revenues are expected to grow only in the mid-single digits over the next few years. Those looking to round out the defensive side of their portfolio, however, may want to consider Waste Management's unique talent of turning trash into cash.

Don't throw these older stories out just yet:

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Fool contributor Nathan Slaughter has been training his dog to take out the trash, with minimal success. He owns none of the companies mentioned.