The fastest dividend grower on the market has been a trash stock for more than four decades. Literally.
Waste Management (NYSE: WM) is North America’s leading collector of waste and recyclables in North America. Founded in 1971, the company has blossomed into a $22 billion behemoth serving 20 million customers in the U.S. and Canada. It boasts the largest network of recycling facilities, transfer stations and landfills in the industry, and serves more than 100 Fortune 500 companies.
Waste Management isn’t all about waste, however. It’s also a leader in the renewable energy field, producing more than twice the amount of renewable electricity than the entire U.S. solar industry.
That spirit of recycling and renewability carries over to Waste Management’s shareholders.
No company has grown its dividend faster over the past decade.
Since 2004, Waste Management has increased its dividend from a mere penny per share to $0.375. That’s a compound annual growth rate of 64.6%, more than 17% higher than any other company in the S&P 500.
At its current $49 share price, Waste Management offers a healthy 3.1% yield. Combined with the 9.2% year-to-date increase in shares, that makes for a pretty appetizing return … especially for a trash company.
What’s remarkable about Waste Management’s recent dividend hikes is that they aren’t being fueled by enormous profit growth. In 2007, the company brought in $2.23 in earnings per share. Last year, that number dipped all the way to 21 cents per share due mostly to a poor fourth quarter dragged down incentive compensation and risk management accruals.
The EPS slowdown hasn’t slowed WM’s dividend growth one bit. The company has upped its quarterly payout by one to three cents every year since 2005 – profit margins be damned.
Perhaps the day will come when Waste Management changes its shareholder-friendly ways. After all, margins have become razor thin at a mere 0.73%.
Who knows how long WM can keep up its benevolent act. I suppose as long as investors keep buying the stock. WM shares are up 55% in the last two years (vs. a 47% return in the S&P 500), even as earnings per share have declined year-over-year in four of the last seven quarters. That’s a pretty good sign that income investors are attracted to the stock because of its consistent dividend growth.
And don’t get too hung up on last year’s earnings drop-off. It’s looking more like a one-year blip that resulted largely from one very bad quarter.
With the exception of 2013, Waste Management’s EPS has been between $1.76 and $2.23 every year since 2005. It’s on track to exceed that EPS range this year, with an average estimate of $2.41 among the six brokers that cover the stock. Per-share earnings are expected to jump to $2.53 next year.
So while Waste Management isn’t necessarily swimming in cash, it hasn’t altered from its dividend-growth strategy for a full decade. Unless profits fall well short of expectations in the coming year-plus, that’s not likely to happen anytime soon.
Waste Management isn’t likely to grow its dividend by another 64% annually in the coming decade. After all, the payout is up to $0.375, not a penny like it was a decade ago. However, the company is still a very steady dividend grower, offers a generous 3.1% yield, and is on the cusp of its most profitable year yet.
For income investors, Waste Management is quite the treasure.
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