Portfolio X-Ray: Waste Management

Note: Read this introduction to see what I am doing in this series.

About Waste Management
Waste Management (NYSE: WM) is the nationwide leader in what its name says it does: waste management. But it is not all about hauling trash or managing landfills. As the company says in its most recent 10-Q:

“We are North America’s leading provider of comprehensive waste management environmental services. We partner with our residential, commercial, industrial and municipal customers and the communities we serve to manage and reduce waste at each stage from collection to disposal, while recovering valuable resources and creating clean, renewable energy. Our “Solid Waste” business is operated and managed locally by our subsidiaries that focus on distinct geographic areas and provides collection, transfer, recycling and resource recovery, and disposal services. Through our subsidiaries, we are also a leading developer, operator and owner of waste-to-energy and landfill gas-to-energy facilities in the United States.”

In some parts of the country, Waste Management is the only company in the waste removal business, and even in the places where local municipalities control garbage removal, chances are they are taking the trash to a Waste Management-owned landfill or other waste remediation facility. They are also leading the way in transforming trash into energy through their Wheelabrator subsidiary, which converts 23,000 tons per day into 669 megawatts of energy.

Why I Invested
When I initially purchased Waste Management, I was just working on building a solid foundation for my portfolio. I was looking for a solid dividend-paying company, and Waste Management has a solid dividend history, raising its annual dividend each year since 2004. While it’s payout ratio is a bit high — right around 80% — its ubiquitous presence across most of North America bodes well for the future of the company.

And, as mentioned previously, they are truly leading the way in waste-to-energy conversion, which could be greatly beneficial if the United States continues to move towards energy independence. Its Wheelabrator subsidiary has been converting waste to energy since 1975, so they have industry-leading expertise in this budding field. If it can continue to grow this segment of its business, it should supplement the 96% of its business that is focused primarily on the waste management business.

When I Would Sell
Only a dramatic change in the structure of the company would change my mind. Earlier this year, rumors surfaced that Waste Management was considering conversion to a REIT, which the company quickly dashed. While REIT status could have an impact on the companies dividend, it would also take the focus away from the business of hauling trash and turn the focus on the performance of its land assets. If they were to ever convert, I would definitely have to take a long hard look at the resulting company before deciding to maintain my position. Until then, I think I will keep Waste Management as part of my portfolio for the foreseeable future.

Until next time…