Waste Management (NYSE:WM) stock has been in the dumps lately: After a big slump in mid-2011, the company has trailed the S&P 500 by 20 percentage points. Since then, however, the nation's largest garbage-hauler has taken steps to position itself for future success, leveraging its dense collection network and reorienting itself toward greener, more environmentally friendly waste solutions. Most recently, the company has announced an ambitious restructuring plan to create a more flat, responsive, and effective management structure.
To help investors decide whether Waste Management is trash or treasure, The Motley Fool has compiled a premium research report on the company. Today, you can enjoy a free sneak peek of the report. Read on to learn more about how Waste Management's stable and recurring revenue has given the company the ability to generate one of the safest dividends available.
An investor can't look at Waste Management without noticing the stability and resilience of its business model. Even in the depths of the darkest recession, Waste Management's customers need to get rid of their trash somehow. Waste Management is North America's largest waste servicer, and its top dog status gives it economies of scale and network effects that allow the company to compete successfully for waste collection contracts. As a demonstration of Waste Management's ability to meet customer needs better than any of its competitors, the company boasted a contract renewal rate of 88% in 2011, a year in which many of its municipal customers faced unprecedented budgetary challenges.
Even better, Waste Management is the nation's largest owner of waste disposal sites, with over 270 working landfills, over 280 transfer sites, and over 100 recycling centers. Landfills in particular are a challenging advantage for any potential competitor to replicate: New landfills are extremely difficult to build due to strict federal regulation and local political opposition. As a result, the number of municipal solid waste landfills in the U.S. has actually diminished steadily, from nearly 8,000 in 1988 to only 1,900 in 2009. When municipalities do allow for the construction of new landfills, experienced operators with long track records like Waste Management are in a great position to win these contracts.
. . .Annuity-like revenue
The necessity of the service Waste Management provides and the competitive advantages the company enjoys results in remarkably stable sales that Waste Management calls "annuity-like revenue." For shareholders, this means that Waste Management's dividend is one of the safest available. Through the recession, Waste Management actually raised its dividend every year, and the company's 66% payout ratio leaves plenty of room for future dividend increases even if revenue grows sluggishly.
It's hard to overstate the importance of Waste Management's generous dividend payouts to investor performance. For example, Waste Management's returns over the past five years based on share price alone has significantly lagged the S&P 500, losing 16.5% over that recessionary period while the S&P 500 lost only 5.7%. Add dividends into the mix, however, and a Waste Management investor was virtually flat, losing 0.2%. With the drubbing that shares have taken over the past five years and the reliability of dividend increases, today a share of Waste Management yields a whopping 4.4%. Income investors would be hard-pressed to find a higher and more secure yield anywhere.
Besides the analysis above, our premium research report digs deep into more opportunities Waste Management is looking to exploit, as well as risks the company faces. You'll also find reasons to buy or sell, a look at the company's management team, and the "Foolish Bottom Line" on Waste Management. Best of all, the report keeps investors informed with a full year of analyst updates. To keep reading, just click here to get your copy today.
Fool contributor Daniel Ferry owns shares of Waste Management. The Motley Fool owns shares of Waste Management. Motley Fool newsletter services recommend Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.