How does a company growing this slowly become so expensively valued? Management is aging, and the safe bet is that investors are hoping for a management change or acquisition. The optimistic approach on this, is that Tootsie Roll Industries (NYSE:TR) has a GREAT looking balance sheet. With almost no debt, and roughly $100 million on hand.
Until a company shakeup occurs, I wouldn’t count on the dividend going anywhere anytime soon. The growth just isn’t there right now.
Is it time to take out the trash?
Waste Management, Inc. (NYSE:WM)
Waste Management, Inc. (NYSE:WM) is an American company that serves North America through the disposal and recycling of waste material.
source: Yahoo Finance
P/E: 24.2
P/CF: 9.4
Dividend Yield on Current Prices: 3.40%
5 Year DGR: 8.1%
3 Year DGR: 7.0%
1 Year DGR: 4.4%
Dividend headwinds
A glance at the fundamentals of Waste Management, Inc. (NYSE:WM) may leave you troubled. Earnings per share are declining instead of increasing. With a debt to equity ratio of 1.6, it is currently carrying more liabilities than assets. This pressure on the balance sheet is putting the squeeze on the dividend. Its payout has crept up, and now sits at 81.6% of earnings.
How fast could Waste Management, Inc. (NYSE:WM) right the ship? It is hard to say. The nature of its business model doesn’t scream “growth.” Its five year sales growth rate is 0.5%, essentially flat. However, Waste Management, Inc. (NYSE:WM) is still the “best of breed” in its sector. A restructuring to cut costs by management could provide a spark, if it were to happen.
Because this is not known to be on the horizon, I would advise against speculating. Until it proves itself “changed,” and the fundamentals/balance sheet improve – I would steer clear of this stock’s dividend.
The bottom line
A dividend needs to be growing to be in a well run dividend growth portfolio. These stocks are not necessarily bad companies. However, each faces some challenges that must be overcome. Because of the known risks to each company’s dividend growth, I will not be putting these stocks in my dividend growth portfolio any time soon.
The article Be Wary of These Stocks With Weak Dividend Growth originally appeared on Fool.com and is written by Justin Pope.
Justin Pope has no position in any stocks mentioned. The Motley Fool recommends Waste Management. The Motley Fool owns shares of Waste Management. Justin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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