Waste Management, Inc. (WM), Republic Services, Inc. (RSG): One Man’s Trash Is Another Man’s Treasure

Industry comparison

Waste Management has a gross operating margin of 13.5% and sports a 3.60% dividend yield by paying out 81% of its earnings. Republic Services, Inc. (NYSE:RSG) has operating margins of 14.2% and pays out 60% of its earnings, resulting in a 2.7% dividend yield. Both these companies are in a matured industry and benefit from scale and their established landfills. Building out new single stream recycling facilities are capital intensive projects that are not going to be financed by the mom and pop haulers that compete in Waste Management and Republic Services, Inc. (NYSE:RSG) territory.

Both these companies are rock solid and face little threat of competition. They get paid to haul away garbage, and then get paid when they sell the commodities that are produced. However, Waste Management’s management team seems to be acting faster on its plan to convert to natural gas and reduce expenses.

Foolish bottom line

Waste Management, Inc. (NYSE:WM) continues to invest in and develop new technologies and processes that extract value from the materials they collect. Waste Management produces commodities and energy from this trash. It generated nearly 1,400 megawatts of electricity from its landfills in 2012, more than the entire solar industry. The garbage business has some pretty large barriers to entry and seems to keep consolidating with bolt-on acquisitions by the large players.

An investment in either Waste Management, Inc. (NYSE:WM) or Republic Services, Inc. (NYSE:RSG) will provide stability and income to a portfolio. Waste Management provides a slightly higher dividend with less volatility than Republic Services, beating it as the number one fully integrated “waste management” company.

The article One Man’s Trash Is Another Man’s Treasure originally appeared on Fool.com and is written by Wes Patoka.

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