Insights

This Dividend Stock Just Bought $520 Million of its Own Shares — Should You Buy Too?

Share repurchases have been hot the past few years, including during this market downturn. As share prices have fallen, plenty of companies see this as an opportunity to start buying back their stock at a discount.

However, Waste Management (NYSE: WM) has been doing this for a long time. Since 2000, the company has cut its number of outstanding shares by nearly a third, creating significant shareholder value. This long-term habit continued this year, with Waste Management buying back $520 million of stock in 2022. Should you follow suit and buy some shares of Waste Management?

Image source: Getty Images.

Waste Management loves its investors

Unlike most stocks, Waste Management stock is actually in positive territory this year: Shares have risen 11% over the past year.

Waste Management is a top dog in the trash industry in the U.S. and Canada. It has 260 active landfills and collects trash from more than 15,500 routes across the U.S. and Canada. Waste Management controls almost a quarter of the solid waste and recycling space in terms of revenue, lagging only compared to all local municipality players combined. This dominance has led to very impressive profitability. In Q2 alone, the company generated $503 million in free cash flow and $587 million in net income.

The company uses this exceptional cash flow to reward shareholders. On top of the company’s $520 million in stock buybacks so far this year, Waste Management has also paid over $540 million in dividends, representing a payout ratio of 48% — that means just under half its net income is being used for dividends.

That isn’t all, however. Waste Management has stable competitive advantages that could help it remain the industry leader. Namely, there are significant barriers to entry. It can cost upward of $1 million to build a landfill, and when residents don’t want to live near a landfill, it adds another layer of complexity. These factors make it quite hard for rivals to reach Waste Management’s scale. Therefore, the company will likely be able to continue generating immense cash flow for the long haul. 

How does it plan on using that cash flow? It wants to continue rewarding shareholders. The company expects to repurchase almost $1 billion of stock over the rest of the year, or about 1.45% of its recent market cap.

Waste Management is benefiting shareholders in other ways

The company is also looking to become more environmentally friendly, and it is doing so by scaling its renewable natural gas (RNG) capabilities. RNG has already taken center stage for the company, with 57% of its trash collection fleet running on natural gas. However, the company is looking to add 17 more RNG-generating landfills to its operations.

Waste Management plans to spend $825 million through 2025 to reach this goal, and by doing so it could generate six times the RNG it creates now by 2026. This investment has a payback period of roughly three years, so not only will this investment help the environment, but this will be paid off quickly, allowing Waste Management to become even more profitable along the way.

Another way Waste Management is helping shareholders is by raising prices during this inflationary period. Core prices for the company increased to a record high of 7.5%, and the company believes it can hold onto these higher prices for the long haul. For most of its customers, trash fees make up a tiny percentage of their total expenses, making minor price hikes almost irrelevant. Therefore, as inflation begins to decline, Waste Management believes it can hold onto its higher prices, resulting in a higher profit margin over the long haul. Steadily increasing its profit margin is nothing new for Waste Management: Over the past decade, the company has improved its profit margin from roughly 6% to 11.3%.

Why you should follow suit

Waste Management runs a tight financial ship, clearly shown by its continued high levels of profitability. With its robust pricing power and environmentally friendly investments, the company looks poised to increase its profitability even more. 

Add in the company’s attractive 1.5% dividend yield and stock repurchases, and being a Waste Management shareholder looks quite appealing. Over the past decade, Waste Management has nearly doubled the market’s total return.

Given the impressive competitive advantages it has and the durability of its business going forward, Waste Management could be a staple of your portfolio.

Jamie Louko has positions in Waste Management. The Motley Fool recommends Waste Management. The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Rebate Rewards

Level 2 Rebate

Deposit $2,000 and get $200 Rebate
$ 200 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $2,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $200 Rebate
Popular

Level 1 Rebate

Deposit $1,000 and get $100 Rebate
$ 100 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $1,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $100 Rebate

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here To Get Started
EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here For More Info