The share of Waste Management (WKN: 893579) is definitely one of the more exciting dividend stocks: For 20 years now, management has been increasing its own payout per share. In just five more years, the share certificates could belong to the circle of aristocratic distributors.
The basis of this remarkable run is a stable and relatively protected business model: through the network of landfills and contracts for waste disposal services, the company has a quasi-monopoly. In addition, disposal is a basic service that you cannot do without even in times of crisis.
Nevertheless, the current quarterly figures show that the business model is not entirely free of slumps. With this in mind, let’s take a foolish look at the fresh numbers. As well as the question of whether the stock may no longer be a purchase.
numbers, data, facts
As we can see from a look at the current numbers, key metrics have plummeted: sales fell from $ 3.94 billion in the year-ago quarter to $ 3.56 billion. The current figure for the first six months is $ 7.29 billion, compared to $ 7.64 billion in the prior year.
Earnings have slumped as well: Operating income for the past three months was $ 527 million, compared to $ 696 million in the previous year. In the first six months, the figure was $ 830 million, after a half-year 2019 result of $ 959 million.
The bottom line was earnings of $ 0.73 per share. In the second quarter of 2019, the value was still $ 0.90. An overall weak number, despite all defensive class that the stock basically has.
For the entire fiscal year 2020, management expects sales to fall between 4 and 5% year-on-year. After all, the worst could already be behind the share in the second quarter.
Is the stock no longer a buy?
We should perhaps answer the question of whether the stock is no longer a buy a little more differentiated. On the one hand, at least the dividend is still safe: Management recently paid a quarterly dividend of $ 0.545 to investors. Even with the slump in earnings, the payout ratio is still 74.6%. A value that shows that there is still a certain safety buffer.
Nevertheless, the valuation is still ambitious: measured by a 2019 earnings per share of $ 3.93, the price-earnings ratio would be at a price level of $ 109.38 (July 30, 2020, relevant for everyone current prices) to a value of 27.8. The moderately yielding results should lead to a slightly higher price-earnings ratio. That shows: Yes, the stock could possibly even be a little expensive.
The dividend yield is also around 2%, which is also comparatively little. In the long term, the investment thesis is intact in view of the defensive class and the strong competitive position. However, it may be advisable to see how operational performance continues.
For me: on the watchlist!
There is no question that the Waste Management share has a certain defensive class. However, it is also a business model that is apparently not entirely immune from the weaker economy. The valuation is high at the same time, the dividend is historically strong and sustainable. But also comparatively small.
For me, a complete package that shows me that the stock belongs on the watchlist. At least on mine, the shares are actually far ahead. However, I would like to observe the other quarters a bit first.
The post almost dividend aristocrat Waste Management weakens: shares no longer a buy ?! appeared first on The Motley Fool Germany.
Vincent does not own any of the stocks mentioned. The Motley Fool recommends Waste Management.
Motley Fool Deutschland 2020