ADS 468x60

Saturday, January 22, 2011

One man's trash is another man's treasure

Waste Management (WM) is the nations largest provider of waste management services in the US. It has a history or raising dividends and generates over $1.5 billion dollars in free cash flow that it can use to further increase dividends or execute share buy-backs.

Here is a descrition from morning star:

"Founded in 1894, Waste Management is the nation's largest provider of collection, transfer, recycling, disposal, and waste-to-energy services. The firm serves nearly 20 million customers in the commercial, industrial, municipal, and residential markets. It has 268 landfills that receive 115 million tons of waste per year. Waste Management is the largest provider of domestic recycling services and generates roughly 56% of its revenue from its waste collection business."

As states look to trim budgets, they will look at ways of outsourcing services previously provided by local governments. WM should be a big recipient of outsourced waste services. Furthermore, WM sports an attractive 3.4% dividend yield. Here is a way to play it:

Buy 100 WM @ 37.40 :            ($-3,740)
Sell 1 Jan 12 37.50 Call:            $235
Sell 1 Jan 12 35 Put:                  $245
Net outlay: $3,260

Potential return: $616 (235 +245+126 dividend +$10 appreciation) or a 19% return on a stock that needs to go up by <1%.

Breakeven: 33.85


Post a Comment