Waste Management (NYSE:) is a recession-resilient company that has rewarded long-term shareholders through an increasing stock price and dividend per share.

Stock is at all-time highs and currently stands at 33.7%. It provides environmental waste management services for residential, commercial and industrial customers as well as municipal clients in North America.

WM operated or owned 263 solid-waste landfills, 5 secure hazardous waste landfills (SWGs), 103 materials recovery plants (MRFs), 348 transfer points, and 5 SWGs as at December 31, 2020.

Waste Management is not an area that we are interested in. (See Waste Management stock charts on TipRanks)

Industry Analysis

The North American waste management market size is expected to reach $229.3 billion by 2027, from $208 billion in 2019.

Large amounts of waste will be generated by industrialization and urbanization. This increases demand for smart waste management systems. Waste management, which is growing in a recession-resistant industry is attractive to invest in and generally is less volatile than other industries makes it appealing.

This is good news for risk-averse investors, as Waste Management stock’s beta is 0.82, meaning it is less volatile than the .

Another bonus when it comes to investing in this industry is that these kinds of companies often experience “natural monopolies.” Natural monopolies typically exist due to high barriers to entry. You will likely see the same company every week collecting your trash.

Steady, Unspectacular Dividends

WM’s current dividend yield is about 1.5%, which is not high by any means. The dividend has been steadily increasing. The quarterly dividend of WM was $0.41 per shares five years ago. It is now $0.575 per sharing, an increase of 7%. It is also safe, since WM’s payout ratio is 60.15%.

This low growth rate of dividends is combined with the 1.5% yield on dividends makes it low. It would increase your cost-per-share yield to 3% if its dividend grew at 7% per year over the next 10 years. This is still very low.

This makes WM a poor dividend investment. As the stock continues to rise, the yield has been decreasing steadily over the years.

The Other Side?

There is a lot to love about WM. High barriers to entry enable companies such as WM to have competitive advantages, which was already stated.

The numbers also show these competitive advantages. For example, WM’s gross profit margins have steadily grown from 36.2% in 2011 to 39% now, indicating that competition is not eating into its profits.

However, this stability is not without its costs. The company’s trailing 12-month EV/FCF multiple is currently 31.4x. The stock may still be worth holding if the company continues to grow in the next few year around 10%.

Its current valuation doesn’t leave much room for outperforming the market though.

Wall Street’s Take

Turning to Wall Street, Waste Management has a Hold consensus rating, based on three Buys, four Holds and two Sells assigned in the past three months. A WM average price target of $153.44 indicates that there will be very little change in shares price over the next twelve months.

Final Thoughts

Waste Management is a good company that has treated shareholders well over the long run, and will probably continue doing so going forward.

There are better options elsewhere.

Stock Bros Research didn’t hold any positions in the securities discussed in this article at the time it was published.

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