Checking In on 2012's Top Dividend Stock

Before 2012 began, I went digging through all the dividend stocks I could find to pick out what I suspected would truly be the greatest dividend stock to own for 2012. The result of my search: Veolia Environnement (NYS: VE) . So far, the results have been mixed, as the stock is up 4% on the year.

When I selected this trash collector/energy producer/water treatment specialist, I had three big reasons for putting my own personal money on the line.

  1. I believed the stock was significantly undervalued -- trading at just 0.6 time its book value.

  2. Veolia had its hand in a multitude of different services that made it something of a waste and energy conglomerate.

  3. The company was offering an astounding 11.5% dividend yield, and I couldn't pass that up.

A lot has changed in the two-and-a-half months since I pegged Veolia as my dividend stock of choice. Read below to see how I feel about the company now, and at the end I'll offer you a special free report that promises to delight the dividend-crazed investor.

First, the bad news
As I mentioned in my original recommendation, Veolia was forced to cut its monster dividend. International companies often adopt a strategy of changing their dividend payout year by year, in accordance with their levels of free cash flow -- instead of trying to maintain the same level through thick and thin, like most American companies do.

The company announced that the dividend for the 2012 and 2013 fiscal year would be equivalent to a 7.35% yield. Though it's not as strong as it once was, that kind of dividend is nothing to scoff at, either.

The company also cited decreasing GDP growth and public expenditures in mature economies, as well as an ongoing process of deleveraging, as significant challenges moving forward. Such challenges are putting a lot of pressure on margins, and forcing the company to reduce its footprint from 77 countries to less than 40.

The company will also be exiting the trash-collection business in America, as rivals Waste Management (NYS: WM) and Republic Services (NYS: RSG) were eating up so much of the market share that Veolia just couldn't gain a critical mass of customers to be profitable.

But there's a silver lining
While I cite such a reduction in footprint as "bad news," it could just as easily be viewed in a positive light. In reality, Veolia is busy doing two big things. The first is deleveraging itself. The company has a stated goal of just 12 billion euros of debt by 2014, which would represent a leverage of around 3.0.

The second is a refocusing of where its business provides the most value toward its services. By cutting off programs that were either marginally contributing to the bottom line or where the company wasn't already a leader, it'll be better suited for outperformance in the long run.

Specifically, the company will be focusing on efficiently managing large public services, likely focused on Europe, where the company doesn't have to worry as much about American competitors like Republic and Waste Management, which are both bigger than Veolia, with market caps of $10.9 billion and $15.8 billion, respectively.

It will also be doubling up on its business strategies to treat water systems in China and provide energy services for the countries of Central and Eastern Europe.

The effort seems already to be paying off, as the company has won contracts for water treatment in Paris and waste management in Leeds, England.

I'm still bullish
No company is without its risks, and that certainly applies to Veolia. While the climate in Europe continues to remain contentious, I believe that Veolia provides basic services that are necessary for the functioning of any society -- even ones with severe debt problems.

And since I'm a long-term investor at heart, I can look beyond just 2012, and see Veolia growing its presence in Europe and Asia 10 years from now. That's why I'm maintaining my bullish CAPScall on my All-Star profile.

But Veolia is just one of many great dividend stocks. If you're interested in further dividend ideas, I suggest you check out our latest special free report detailing 11 rock-solid dividends. Inside the report, you'll get the names -- and logic behind -- all 11 dividend dynamos. Get your copy of the report today, absolutely free!

At the time thisarticle was published Fool contributor Brian Stoffel owns shares of Veolia Environnement. You can follow him on Twitter at @TMFStoffel.The Motley Fool owns shares of Waste Management. Motley Fool newsletter services have recommended buying shares of Republic Services, Veolia Environnement, and Waste Management, and writing a covered strangle position in Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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