Waste Management, Inc. (WM), Republic Services, Inc. (RSG), Veolia Environnement SA (ADR) (VE): Could You Turn Trash Into Treasure With These Stocks?

It’s worth noting that because the company is domiciled in France, investors will lose a percentage of the payout to foreign withholding taxes. Even so, Veolia Environnement SA (ADR) (NYSE:VE)’s yield is double the yield of either Waste Management or Republic Services, and several hundred basis points higher than the yield on the 10-year Treasury Bond.

Bottom line: pass on trash

With Waste Management at $40 per share and Republic Services, Inc. (NYSE:RSG) at $33 per share, my position is that their soaring stock prices have become disconnected from their fundamentals. The waste management industry is a slow-growing one, and the underlying revenue and earnings growth of each of these two companies bear this out.

Waste Management, Inc. (NYSE:WM) and Republic Services, Inc. (NYSE:RSG) operate highly profitable businesses, but there simply isn’t enough growth potential to justify paying 21 or 22 times trailing earnings for either of these stocks.

At these prices, I’d reason that Waste Management, Inc. (NYSE:WM) and Republic Services investors can look forward to their 3.7% and 2.8% respective yields, along with dividend growth in the mid-single digits going forward. At the same time, it doesn’t appear that either of these stocks currently provides compelling capital gain potential.

If high yield is the focus of your investing, you’d be better off with Veolia Environnement SA (ADR) (NYSE:VE), which provides a huge yield that compares favorably to its two industry peers.

All told, the mixture of high debt and low growth can be a toxic combination. As a result, I’m content to wait on the sidelines for Waste Management and Republic Services to get their financial houses in order, and I’d recommend investors do the same.

The article Could You Turn Trash Into Treasure With These Stocks? originally appeared on Fool.com and is written by Robert Ciura.

Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Republic Services, Veolia Environnement (ADR), and Waste Management. The Motley Fool owns shares of Waste Management. Robert 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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