Waste Management: future dividend aristocrat, all-weather stock

Waste Management (NYSE: WM) stock price has done well this year, continuing the momentum it has been in the past few decades. It has jumped by 17% in 2024 and by over 13,100% since going public in 1971. This means that $1,000 invested in the company on its IPO day would now be $118,000. Accounting for dividends, the amount would be much higher than that.

All-weather company

An all-weather company is one that is expected to do well in all economic conditions. I consider Waste Management, a company that collects and disposes waste as one such company since people will always generate waste. 

A good example of this is during the Covid-19 pandemic when most companies were affected. Waste Management and its competitors did just fine. WM’s revenue fell slightly to $15.2 billion while its net income dropped slightly to $1.496 billion. 

Other companies like Waste Connections and Republic Services had a similar performance. The same happened during the Global Financial Crisis (GFC) in 2008 and the dot com bubble in the early 2000s.

Waste Management has grown well over the years both organically and through acquisitions. Most recently, the company made a bid for Stericycle, a company that focuses on medical waste in the United States, 

The company has also benefited from generating additional sources of revenue. For example, the company has become a leading player in renewable energy, where it generated over $276 million in revenues last year. Its renewable energy generates money by converting landfill gas to energy and by selling carbon credits to other companies working on net zero initiatives.

Waste Management’s financial results

Waste Management is a mature company, meaning that its revenue growth should not be compared by other young companies. Nonetheless, the firm’s annual revenue has been growing quite well. 

Total revenue rose from over $15 billion in 2020 to over $20.4 billion last year and estimates are that it will make $21.57 billion and $23.4 billion in 2024 and 2025. Including Stericycle, its revenue will be much higher since analysts expect that Stericycle will make $2.69 billion and $2.79 billion in that period. 

However, by acquiring Stericycle, the company has said that it would suspend its share repurchase program as it works to move its leverage from 3.6 to between 2.75 and 3 in the next twelve months. While this is painful, the management believes that Stericycle will bring more value as it seeks to become the biggest player in the medical waste industry.

The most recent financial results showed that its revenue rose to $5.4 billion in Q2 from $5.1 billion in Q2’23. This growth was both organic and through its acquisitions, which stood at $750 million through July.

Over the years, Waste Management has become a big acquirer of local waste management companies, which has helped it become the biggest player in the industry. 

Future dividend aristocrat

In addition to its long record of revenue and profitability growth, Waste Management stock has done well because of its dividend. The company has a trailing dividend yield of 1.43% and a payout ratio of 41.79%. These numbers mean that the firm has a room to grow its dividend in the next few years.

This is notable because WM has a track record of raising its dividends in the past 20 years, meaning that it has just five years to go before it becomes a dividend aristocrat. Many dividend aristocrats are seen as good value stocks, especially for income-focused investors. 

Waste Management is not a cheap stock

It is worth noting that Waste Management is not a cheap stock as it trades at a forward P/E ratio of 29.3, higher than the sector median of 22.6. The P/E multiple is also higher than the S&P 500 index average of 21. 

It is not uncommon for companies with leading market share to be expensive. Just look at firms like Nvidia and Microsoft. Indeed, for Waste Management, the current forward P/E ratio is in line with its five-year average. 

On the positive side, WM seems like the cheapest company in the sector. Waste Connections has a forward P/E ratio of 44 while Republic has 33.

Waste Management stock price analysis

Most analysts have a bullish view of Waste Management stock, which explains why the average target is $225, higher than the current $208. Oppenheimer maintains an outperform rating while RBC Capital has a sector perform.

Technically, the stock seems to have found some resistance after its earnings per share came in short of expectations. It has also formed a rising wedge chart pattern, a popular bearish sign.

Therefore, I believe that any weakness should be seen as a good entry point, especially for long-term and patient investors.