Is This the Best Dividend on the Market?

An investor can't look at Waste Management without noticing the stability and resilience of its business model. Even in the depths of the darkest recession, Waste Management's customers need to get rid of their trash somehow. Waste Management is North America's largest waste servicer, and its top dog status gives it economies of scale and network effects that allow the company to compete successfully for waste collection contracts. As a demonstration of Waste Management's ability to meet customer needs better than any of its competitors, the company boasted a contract renewal rate of 88% in 2011, a year in which many of its municipal customers faced unprecedented budgetary challenges.

Even better, Waste Management is the nation's largest owner of waste disposal sites, with over 270 working landfills, over 280 transfer sites, and over 100 recycling centers. Landfills in particular are a challenging advantage for any potential competitor to replicate: New landfills are extremely difficult to build due to strict federal regulation and local political opposition. As a result, the number of municipal solid waste landfills in the U.S. has actually diminished steadily, from nearly 8,000 in 1988 to only 1,900 in 2009. When municipalities do allow for the construction of new landfills, experienced operators with long track records like Waste Management are in a great position to win these contracts.

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Annuity-like revenue
The necessity of the service Waste Management provides and the competitive advantages the company enjoys results in remarkably stable sales that Waste Management calls "annuity-like revenue." For shareholders, this means that Waste Management's dividend is one of the safest available. Through the recession, Waste Management actually raised its dividend every year, and the company's 66% payout ratio leaves plenty of room for future dividend increases even if revenue grows sluggishly.

It's hard to overstate the importance of Waste Management's generous dividend payouts to investor performance. For example, Waste Management's returns over the past five years based on share price alone has significantly lagged the S&P 500, losing 16.5% over that recessionary period while the S&P 500 lost only 5.7%. Add dividends into the mix, however, and a Waste Management investor was virtually flat, losing 0.2%. With the drubbing that shares have taken over the past five years and the reliability of dividend increases, today a share of Waste Management yields a whopping 4.4%. Income investors would be hard-pressed to find a higher and more secure yield anywhere.