Growth & income investors typically look for income stocks that can grow over the long-term. The income, in the form of dividends, may or may not be important for these investors to live on, but it certainly lowers the overall volatility of the stocks. Think about it: when the market's falling and people are panicky and selling, they think twice about selling a stock which has been yielding 4% and raising its dividend annually. That resistance to selling buoys the stock price in volatile markets, thereby easing the stress of stock investing.
"During 2011, high-dividend payers were the top-performing group in the S&P 500, with the top 50 yielders at the start of 2011—all with 4%-plus yields—returning more than 8% (not including dividends), compared with a flat showing for the entire index, according to Birinyi Associates." -- In Search of Yield, Barrons.com, Jan. 21, 2012.
Waste Management (WM, $33.96) is the largest waste disposal company in North America. It's a large-cap stock with a current yield over 4%, and possibly a good addition to a growth & income stock portfolio.
"The Company's four geographic operating groups...provide collection, transfer, disposal and recycling services. Its fifth Group is the Wheelabrator Group, which provides waste-to-energy services, and manages waste-to-energy facilities and independent power production plants (IPPs)." -- Morgan Stanley Research
Earnings per share (EPS) have bounced within the range of $1.98 to $2.23 in each of the last six fiscal years. However, Wall Street projects EPS to grow 9% to $2.30 per share in 2012, and 12.6% to $2.59 per share in 2013. "The company projects compound annual growth rates (CAGRs) of 3% to 5% for revenue and 8% to 12% for diluted EPS for the next five years." -- Standard & Poor's Research. Perhaps the earnings growth will be the catalyst to launch the stock price past heavy resistance at $39.
S&P has a Qualitative Risk Assessment of "Medium" on Waste Management. "Our risk assessment reflects soft volume due to weak economic conditions, offset by our view of a solid balance sheet, with strong cash generation for dividends, share buybacks, debt paydowns, and niche acquisitions. In addition, we view corporate governance practices as sound."
Recommended
Waste Management pays a dividend with a current yield of 4.18%. The recent December increase puts the dividend at $1.42 per share.
WM traded approximately $31 to $39, repeatedly, in the years 2006 through 2008; fell and rebounded with the 2008 Financial Meltdown, then reestablished that trading range beginning in early 2010.
The current trading pattern of $29 to $34 looks like its wrapping up the late summer 2011 market correction, with the next upward move reaching the first half 2011 range of $34.50 to $39.50. With a 4.18% current yield, I wouldn't quibble over the purchase price on this stock.
The primary audience for WM stock will be growth & income investors, with a secondary audience being growth investors who believe that earnings growth will cause the stock to jump past resistance at $39 and begin reaching new highs. In addition, traders who buy in the low $30's and ride the stock back to $39 could achieve a nice short-term profit.
Waste Management was recently featured in 4 Dividend Winners That Should Be in the Dow -- Motley Fool, Jan. 22, 2012, Waste Management: Dividend Dynamo or Blowup? -- Motley Fool, Jan. 19, 2012 and 6 Stable Equities for an Uncertain World, Seeking Alpha, Jan. 19, 2012.
Other stocks in WM's peer group include Casella Waste Systems (CWST), Republic Services (RSG), Waste Connections (WCN) and WCA Waste (WCAA). (In the interest of portfolio diversification, I will not be purchasing Waste Management stock because I already own Republic Services stock.)
---
For Townhall readers we’ve published our 2012 model portfolio for Trading and Aggressive Growth. For our subscribers, we’ve created model portfolios for Growth and for Growth and Income.
Investors who want to see the model portfolios can visit Goodfellow LLC and sign up for the one-month free trial subscription.
Free. You can’t beat that.
Join the conversation as a VIP Member