My goal is to provide one in depth breakdown every month. My breakdowns will be focused on companies that pay dividends. I wouldn’t be your Dividend Hero if I didn’t at least do some dividend talk. I want these breakdowns to be informative and eye opening. Large companies are incredibly difficult to wrap your arms around because they are involved in so many sectors and lines of business.
This breakdown will cover 4 main topics
When/how the company was founded and how the company stands today
What the company does as its primary business
“Peeling back the onion” -finding different layers within the business
The health of the dividend
We are so used to today’s sanitation standards, it can be easy to forget about how far Waste Management has come with waste collection. The handling of trash used to be inconsistent and resulted in piles lining city streets and sidewalks. That started to change in 1893 when a Dutch immigrant named Harm Huizenga began collecting trash in Chicago for a small fee. With little more than a modest wagon, he built up a reliable client base over the years by effectively managing the waste of a rapidly changing society. Soon after the war world wars ended, we made a shift toward disposable products that were designed to make lives simpler. This created more waste.
In 1968, Harm's grandson Wayne Huizenga and two other investors, Dean Buntrock and Larry Beck, had a vision. They wanted to serve their community by properly managing the waste produced by a rapidly growing population consuming more and more products built for convenience. So they founded Waste Management. In the 1970s, Americans started to embrace a more environmentally friendly mindset. Waste Management was already professionally and responsibly disposing of waste, and they expanded their commitment to the environment by beginning to address complex specialized waste.
“By 1982 Waste Management had become the world’s largest waste disposal company, with more than $1 billion in sales. We were one of the first truly integrated waste companies, not only collecting waste but responsibly managing the landfills it ends up in. And they were also one of the first to recognize the burgeoning recycling movement, building robust collection, materials recovery and materials marketing infrastructures to ensure that more of our waste finds a second life.”
Safe to say that Waste Management is the industry leader in waste collection and they provide an invaluable service that keeps the world functioning smoothly. Waste collection truly to its core is an essential business. I always ask people “what would happen if the trash truck stopped coming. Seriously, what would you do?”
Where does Waste Management stand today?
They became publicly traded in 1972 and they are now a 62 billion market cap company. They have over 45,000 employees in North America and are the largest waste collection and recycling company in North America. On their latest quarterly earnings report they reported 4 billion in revenue. They are currently investing over 500 million in alternative fuel technology in over 100 countries around the world and they have 6,500 alternative fuel vehicles on the road. Waste Management has come a long way from picking up trash in a wagon on the streets of Chicago. They truly are a global company that does more than just comes and gets your trash.
What is Waste Managements primary business?
Waste Management provides waste collection services for both homes and businesses. According to their website, their main services are trash collection and recycling for home, waste disposal and recycling for business, roll-off dumpster rental, bulk trash pickup, construction waste disposal, bagster- dumpster in a bag, and eWaste. For residential use, this appeals to individual homeowners, homeowners associations, and property managers. On the business front, these services appeal to offices, schools, commercial properties, restaurants, construction projects and manufacturing and industrial sites. It is hard to find a place or an industry that does not need some kind of waste collection. Whatever the need is, Waste Management has a solution for it.
What are some different layers within Waste Management?
There are a few different layers to Waste Management’s business that you might not even know about. First off, they are harnessing the power of solar energy to power homes. They have an awesome partnership with Citizens Energy Corporation and Captona to install solar panels in closed landfills which are used to power nearby homes. They are working on expanding that program across the country and they are currently doing it in 7 landfills.
Waste Management also uses what they call landfill gas-to-energy. They capture gasses that are released by landfills and use that gas to power homes with natural gas. They also have an entire fleet of trucks that run on this gas. Waste Management is currently powering 460,000 homes with their landfill to gas energy capabilities. Not bad for a trash collecting company. I love how Waste Management is positioning itself for the future. They are innovating in a rather boring industry and hopefully that will fuel growth for years to come.
How healthy is Waste Managements dividend?
There are a few things that you want to analyze when looking at the health of a dividend. First off, is the dividend sustainable? One of the first metrics I look at is the dividend payout ratio. Waste Management has a dividend payout ratio of 59.42%. This means that they pay 59.42% of their net earnings to stockholders in the form of dividends. Anything over a 50% dividend payout ratio signifies that the business is mature but they still have cash leftover to reinvest in the business in order to grow.
Another factor that I look at is dividend yield. Waste Management currently has a dividend yield of 1.55%. Yield is calculated by dividing the annual dividend by the share price. So in this case $2.30 / 148.26 = 0.0155 or 1.55%. A high dividend yield (anything over 6%) is worth digging further. Stocks that have high yields might look enticing but you need to look under the hood to make sure the company can continue to pay out such a big dividend.
Dividend yield isn’t everything. One metric that I focus on greatly is divided growth. Here is a chart showing Waste Management’s dividend growth over the years.
This chart shows how Waste Management has grown their dividend over time. This is the chart I love. Not only has the stock grown but so has the dividend. The dividend alone has grown at an average rate of 6% per year for 18 years. The dividend growth outpaces inflation which is exactly what I look for. Waste Management seems poised to become a dividend aristocrat (25+ years of consecutive dividend increases.)
I hope you enjoyed this Waste Management breakdown! I do own shares of Waste Management and none of this investment advice. I hope you learned more about the company. How it started and where it is at today are 2 important pieces when analyzing the total investment picture of a company. Peeling back the onion and finding different layers within the business is one of my favorite parts. Who would have known that Waste Management is involved in solar energy. A simple breakdown of the health of the dividend should give you a few tools in your tool belt to analyze any company. There are many factors to look at when looking at the health of the dividend. Hopefully you can apply the same research to your own favorite dividend stocks.
Thanks for reading along