Key Points
The company is the largest provider of waste collection, recycling, and environmental services in North America.
WM has raised its dividend for 23 consecutive years.
It owns more landfills than any other North American waste management company.
The phrase "cash is king" translates easily to "trash is king," particularly for Waste Management (NYSE: WM), now known as just WM. The industrial company is involved in every aspect of waste management, collecting trash and recyclables, transporting them to its landfills and recycling stations, and converting landfill gas into renewable electricity and renewable natural gas (RNG).
Its shares have risen less than 2% so far this year, but there are plenty of reasons to invest in the Houston-based company, particularly with the stock trading at less than 28 times forward price to earnings, well below its traditional forward price-to-earnings (P/E) ratio.
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Here are three reasons to load up on WM stock:
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It has a huge moat due to its integrated model
WM's competitive advantage centers on its post-collection infrastructure. New landfills in North America face extreme regulatory hurdles and intense local opposition, commonly referred to as the "NIMBY" (Not In My Backyard) effect. Because landfill capacity is non-replaceable and strictly controlled, WM's extensive network of active landfills provides a durable cost and scale advantage that new competitors can't match.
It owns 253 solid landfills, four hazardous waste landfills, and 113 recycling facilities, more than any other waste company in the U.S., and has a 34% market share.
The company's $7.2 billion purchase of Stericycle in 2024 has given the company an additional high-margin growth area: medical waste. It has 17 medical waste incinerators.
It enjoys utility-like pricing power
Trash collection and disposal are non-discretionary utility-like services. Because waste removal accounts for a negligible share of total operating expenses for commercial clients and municipalities, WM has strong pricing power.
The company routinely passes through core price increases that offset inflationary pressures without triggering meaningful customer churn, generating stable, predictable operating cash flow across all economic cycles.
In the second quarter, the company reported revenue of $6.68 billion, up 4% year over year, and earnings per share (EPS) of $1.95, up 8% over the same period a year ago.
WM is forecasting full-year adjusted operating earnings before interest, taxes, depreciation, and amortization (EBITDA) between $8.15 billion and $8.25 billion, up 8.5% at the midpoint. It's also estimating for free cash flow between $3.75 billion and $3.85 billion, up 6.4% at the midpoint. Revenue is estimated to be between $26.275 billion and $26.475 billion, up 4.6% at the midpoint.
Sustainable dividend growth and good capital allocation
WM has demonstrated a 23-year track record of annual dividend increases, supported by a conservative payout ratio of 49.26%. Over the past 10 years, it has increased its dividend by more than 130%. It raised its dividend by 14.5% this year to $0.945 per quarter. In the second quarter, it also had $659 in share repurchases.
The cash-generative nature of the core collection-and-disposal business allows management to simultaneously fund strategic growth initiatives, such as investments in renewable natural gas (RNG) infrastructure and automated recycling facilities, while maintaining consistent share repurchases and growing dividend returns.
James Halley has no position in any of the stocks mentioned. The Motley Fool recommends WM. The Motley Fool has a disclosure policy.