I went with another pretty safe investment this month. I bought some trash! In this case trash is sort of like gold. It will always be there and it is relatively easy to predict its future. Trash collection and waste management services are a necessity to sustain developed countries. People will always consume products and produce seemingly endless amounts of trash. Unfortunately this came at a price. I paid somewhat of a premium when I acquired 30 shares of WM stock.
Quote by [google.com].
Waste Management is North America’s largest provider of waste management services. The name truly says it all! Overall the company operates 249 landfills, 600 collection operations, 104 material recovery plants, and 297 transfer stations. Waste Management also has 26,000 collection and transfer vehicles. Trash collections accounted for about 55% of the Waste Management’s revenue. The company has a monstrous market cap of $31 billion and employs just over 40,000 people.
The P/E is slightly above its historical average indicating that I overpaid for the stock. At the same time Value Line gives the company a “1” for safety, 100 for earnings predictability, and another 100 for price stability. WM earned an A for financial strength. Earnings grew consistently over the years and have nearly tripled since 2001. The company’s dividend of $1.64/share accounted for only 52% of earnings in 2016. This low payout ratio leaves ample room for the dividend to grow.
The downside with a conservative stock is the lack of growth. For instance, Value Line is only projecting a 20% return by 2020 best case. As a long term investor I understand the opportunity costs associated with such a purchase. I might earn considerably more by taking on additional RISK. However, humans inevitably produce waste and somebody ALWAYS needs to deal with it. Waste Management provides an essential service, remains an industry leader, and is projected to grow. Therefore, I will gladly pay a premium for a solid company and the peace of mind that comes with it.
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