Mount Dora is a town with a canopy of live oaks covered with spanish moss. Consequently, acorns are always falling. Occasionally they hurt as they drop on the unsuspecting walker's head. Mostly they are just a nuisance as neighbors are always sweeping walks and street cleaners are tidying up the avenues.
On my walk today I commented to an ernest sweeper " it's a endless job isn't it?". Her response was apt : "I wish they had value and we could sell them." Alas, acorns don't have any value, they're just waste. Other than acorns and spanish moss, most waste does have a value and that brings me to a long time holding, Waste Management.
I've owned this company longer than any other and have grown accustomed to it and its yield, about 3.6% at todays share price. The market values it fairly, not cheaply, at about about 9 X cashfow, 15 X forward earnings, and 2.75 book value. WM uses debt, but isn't overly leveraged.
It, like its major competitor, Republic Services, run little monopolies in the communities they serve. Even if the monopoly comes unraveled by losing a franchise renewal on the pickup of refuse, they still control the landfill and are in an excellent negotiating position. Besides the standard garbage pickup and recycling, they have a large and growing portfolio of gas from waste and electricity from waste projects. They are the ultimate green company. They make money off of everything, including the acorns that adorn the streets of Mount Dora.
I bought WM years ago as a turnaround and both it and its share price have done nicely. I don't think there is any large underpricing here and the share price will mirror the market moves. But that's OK as I also get the 3.6% dividend yield. The payout ratio is about 60%, higher than I'd like, but the rather consistent revenue stream gives me comfort.
Waste Management is a fine company available at a reasonable price that throws off an excellent dividend. A core holding that pays much more than a CD or savings account.
About the author:
Saj Karsan founded an investment and research firm that is based on the principles of value investing. He has an MBA from the Richard Ivey School of Business, and an undergraduate engineering degree from McGill University.
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