One of the richest men in the world is finding value in one of
the dirtiest industries in the world.
With a net worth of over $75 billion, Bill Gates
loves the railroad industry
-- but he's also heavily invested in another "must-have"
The railroad industry is instrumental in moving products from
one region to another, but there are substitutes available, such
as planes and ships.
However, there are virtually no alternatives for garbage
This is truly a must-have industry. It's a business that
performs well regardless of the broader economy. Gates has
recognized this long-term trend and owns two of the industry's
Waste Management (NYSE:
is the leader in the industry, with
Republic Services (NYSE:
coming in second. The low-yield environment, coupled with a
market that's trading at lofty valuations, makes high-yield
defensive stocks attractive. Waste Management and Republic
Services pay solid dividend yields and are quite defensive.
The Bill & Melinda Gates Foundation owns 18.6 million
shares of Waste Management, equal to 4% of the company. The
private investment fund that manages Gates' personal wealth,
Cascade Investments, owns 90.9 million shares of Republic
Services, a staggering 25% of the company.
Republic Services is the #2 player in North America's waste
management market. Republic Services owns and operates 191
landfills and 75 recycling facilities. The waste collection
segment generates the bulk of its revenue, just over 75% of
revenues. Meanwhile, its commercial and industrial business
should get a boost from the rebounding economy.
As construction picks up, the demand for waste generators and
contractors should increase. The other angle to Republic Services
is that it's increasing its operational efficiency by switching
its vehicles to natural gas.
, Gates wrote, "Humans have an amazing capacity for finding ways
around scarcity by using materials more efficiently, recycling
them, or finding substitutes." The key here is recycling.
Republic Services has noted its focus on making key acquisitions
in the recycling space.
Waste Management is the #1 waste management company in North
America, serving some 20 million customers. It also owns
waste-to-energy and landfill gas-to-energy facilities as part of
its Wheelabrator segment.
Waste Management is really leading the move to natural gas as
a viable fuel. It has over 50 natural gas fueling stations,
almost 20 of which are publicly accessible. Just under 15% of its
vehicles run on natural gas, but it hopes to have over 80%
converted by 2020.
Neither of these waste management companies will make you rich
overnight. But thanks to their f
ree cash flow
generating capabilities, the two have been resilient when it
comes to returning cash to shareholders through dividends or
They both have free cash flow yields of above 5%. Waste
Management pays a 3.3% dividend yield, while Republic Services'
is around 2.8%. The two have raised their dividends at an
impressive rate over the past 10 years.
Republic Services has bought back $1.2 billion in shares since
starting its buyback program in 2010, reducing its outstanding
share count by 7%. Waste Management has reduced its share count
by 5.5% over the past five years.
There are high barriers to entry when it comes to waste
management, including capital costs and permitting. The
government scrutiny alone is enough to scare off many potential
entrants. As a result, these two waste-management companies are
poised to continue to be steady long-term performers.
Each stock has a beta of 0.6, meaning they're less volatile
than the broader market. Since 2000, Waste Management has
outperformed the S&P 500 by over 300%, and shares of Republic
Services have outperformed by better than 700%.
Risks to Consider:
A larger push toward recycling could lead to a decline in
collection revenues. Another rough winter could also have a
negative impact on garbage collection and transportation, leading
to revenue declines.
Action to Take -->
Buy these two stocks for solid upside and dividend yields as the
demand for garbage removal and recycling continues to rise. They
are long-term investments that are perfect for buy-and-hold