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The past year persuaded many investors to find businesses with less risk than the tech stocks that thrived in 2020. If you’re in the market for a stable company that rewards shareholders with impressive dividends and minimal volatility, then Waste Management (WM 0.99%) could be for you.
Here’s why WM — as the company likes to be called now — could be one of the best dividend stocks to own for the long haul.
Image source: Getty Images.
WM’s stable business of trash collection, transportation, and recycling has led to a long history of shareholder-friendly actions for investors. The company’s recently announced 7.7% dividend boost brings the payout to $2.80 per share annually.
It is exciting to see the dividend hike, but this is nothing new. In fact, this was WM’s 20th consecutive annual dividend increase. When WM started offering a dividend in 2003, the payout was just $0.01 per year. And over the past decade, the company’s annual payout has nearly doubled.
With 20 consecutive years of dividend growth, WM is gradually on its way to becoming a Dividend King — a company that has raised its dividend for 50 straight years. This is an exclusive list, with only 48 stocks qualifying currently. WM still has another 30 years to go, but the company’s dividend could thrive for the next three decades. Let’s find out why.
WM is the dominant force in the North American solid waste collection and recycling market with a 24% market share. This outpaces every other independent rival, and WM will likely keep its top-dog status for the long haul.
Why? Simply put, it would be immensely complex for even the established rivals to reach WM’s scale. The company has over 260 active landfills, collection trucks that cover 15,500 routes across the U.S. and Canada, 145 facilities that convert landfill gas to energy, 550 collection sites, and lots of other infrastructure. Accumulating this much equipment would be time-consuming, logistically challenging, and downright expensive for all of WM’s competitors.
Just because WM has a sustainable leadership role doesn’t mean it isn’t continuing to invest to ensure it stays on top. WM continuously invests money into capital expenditures and purchases of smaller businesses to enhance and expand its network. From 2019 to 2021, WM spent roughly $10 billion on reinvestments and acquisitions to maintain its leadership in the space.
These investments have a history of being far more efficient than the investments by WM’s rivals, too. WM’s five-year median return on invested capital (ROIC) has been nearly 9.6%, while Republic Services (RSG 1.31%) — the second-place player in this industry — had a median ROIC of just 6.6% over the same period.
While the company’s sustainable and likely ever-growing dividend is one reason to like WM, the company rewards shareholders in other ways, too. The first method is share buybacks. In the first nine months of 2022, for example, WM spent over $1 billion buying back stock. That’s more than it spent paying out its sizeable dividend!
Considering that the company’s number of outstanding shares has contracted by 12% over the past decade, these buybacks seem to be quite effective.
The second reward comes in outstanding stock price performance. Over the past three, five, and 10 years, shares of WM have outperformed both the S&P 500 index and Dow Jones Industrial Average. Despite beating the indexes, WM can also provide far less volatility. This was made abundantly clear over the past year as shares of WM dropped just 1.6%, handily beating the Dow and the S&P 500, which fell 6.3% and 15.8%, respectively, over the same period.
WM looks like the perfect combination of healthy stock price returns, low volatility, and exceptional shareholder-friendly actions. This castle has a seemingly unbreachable moat, which could mean that these trends could continue for the foreseeable future. So if you’re looking for stability or a steady income stream for the long haul, this dividend stock could be for you.
Jamie Louko has positions in Waste Management. The Motley Fool recommends Waste Management. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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