Last update on 2024-06-27

Waste Management (WM) - Dividend Analysis (Final Score: 6/8)

Waste Management (WM) dividend performance review: 6/8 score using 8-criteria system, covering yield, growth, payout ratio, and coverage by EPS and cash flow.

Short Analysis - Dividend Score: 6

We're running Waste Management (WM) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

We gave Waste Management (WM) a dividend score of 6 out of 8. WM's dividend yield is slightly below the industry average, and though it has decreased over time, the company has consistently grown its dividend per share. The dividend growth rate, however, has been inconsistent over the past 20 years, which might concern investors looking for steady growth. The average payout ratio has been high, raising questions about the sustainability of WM's dividends, but recent trends show better balance. Dividends have generally been well covered by both earnings and cash flow, indicating financial health. WM has been paying increasing dividends for over 20 years and has a strong history of stock repurchases, adding confidence in its financials. Despite some fluctuations and a high payout ratio in the past, WM's recent cash flow and earnings trends suggest an improvement in dividend sustainability.

Insights for Value Investors Seeking Stable Income

Given the positives and the company's long track record of paying and increasing dividends, Waste Management (WM) is worth considering for dividend-seeking investors. However, potential investors should monitor the payout ratio and dividend growth consistency. Overall, WM could be a good choice if you want a mix of dividend income and stock appreciation.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is an essential metric that indicates how much a company pays out in dividends relative to its stock price. A higher dividend yield can signify a good return on investment for income-focused investors.

Waste Management (WM) has a current dividend yield of 1.5634%, slightly below the industry average of 1.76%. Historically, WM's dividend yield has shown a downward trend from 4.1577% in 2011 to the current 1.5634% in 2023. This decline is partly due to the company's rising stock price which increased from $32.71 in 2011 to $179.1 in 2023. While a declining yield might look unfavorable, it's crucial to factor in WM's consistent dividend per share growth, from $1.36 in 2011 to $2.80 in 2023. Hence, the trend signals strong financial health and growth in shareholder returns, considering both stock price appreciation and dividend increments.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate indicates how much the dividend payouts by the company have increased over the years. It's essential to consider this trend as a measure of the company’s profitability and consistent income return to its shareholders.

Looking at Waste Management's dividend per share ratio from 2003 to 2023, we observe high fluctuations with values occasionally exceeding the average dividend ratio of 359.8542. Considering data points such as 7420 (2004), 10.3226 (2019), and 13.0435 (2022), the rates show significant inconsistencies. While Waste Management has shown some periods of dividend growth, the unstable increases and occasional decreases present challenges in asserting a consistently high dividend growth rate over 5%. Since long-term stability is crucial for assessing steady growth, this erratic trend indicates that Waste Management has had difficulty maintaining a solid, growing dividend over the past 20 years.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio assesses the proportion of earnings paid out as dividends to shareholders, an essential indicator of dividend sustainability. A payout ratio under 65% is typically seen as a sign of a healthy balance between rewarding shareholders and retaining earnings for growth.

For Waste Management (WM), the average payout ratio over the last 20 years stands at approximately 82.97%. Notably, there are significant deviations in several years, specifically in 2003 (94.34%), 2012 (80.71%), and stunningly in 2013 (699.90%). These high payout ratios can be concerning as they can imply insufficient retained earnings, especially the spike in 2013, which seems to be an anomaly. Only a few years, particularly 2005 (38.28%) and 2007 (43.05%), exhibited a notably lower-than-average payout ratio. Given this trend, the elevated average payout ratio suggests that WM's dividend may not always be sustainably supported by their earnings. Therefore, it is imperative for the company to ensure stable earnings growth or adopt a more balanced payout approach.

Dividends Well Covered by Earnings?

Dividends being covered by earnings per share (EPS) is crucial as it indicates a company's ability to pay dividends sustainably without compromising its financial stability. High EPS coverage of dividends suggests financial health and reduced risk of dividend cuts.

Analyzing Waste Management's (WM) data from 2003 to 2023, the coverage ratio of Dividends per Share by Earnings per Share has shown a fluctuating trend. In 2013, there was an anomalous spike due to unusually low EPS. Generally, however, the coverage ratio hovered between 0.35 and 0.8, with occasional peaks and a notably stable trend post-2017 averaging around 0.48-0.52. The results indicate that while WM has managed to cover its dividends by earnings somewhat consistently, there have been periods of higher risk, specifically where EPS was significantly low, as seen in 2013. Such volatility implies potential caution for investors seeking stable dividend continuity, although recent years show a more reliable pattern, which is favorable.

Dividends Well Covered by Cash Flow?

This criterion examines whether the company's free cash flow is sufficient to cover its dividend payments. A higher ratio indicates a healthier ability to sustain or grow dividend payouts.

From 2003 to 2023, Waste Management's (WM) dividends have generally been well-covered by its free cash flow. The coverage ratio has consistently stayed above the benchmark of 0.45 in most years, demonstrating a robust ability to sustain dividends. The periods of lower coverage, such as in 2003 (0.0083) and in 2012 (0.838), were exceptions and could be attributed to external factors or unique expenditures during those years. A notable trend is the significant improvement in free cash flow from $726 million in 2003 to $1.824 billion in 2023, which supports an increasing dividend payout from $6 million to $1.136 billion over the same period. This indicates a positive trend, suggesting strong operational cash generation and effective financial management by WM, conducive for dividend sustainability and potential increases. Therefore, this trend is good for shareholders looking for reliable dividend income.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Waste Management (WM) and why it is important to consider

Stable dividends over the past 20 years are crucial for income-seeking investors as it provides a reliable income stream. The value of the dividend per share (DPS) from 2003 to 2023 shows a clear upward trend, starting from $0.01 in 2003 to $2.8 in 2023. This consistently increasing DPS indicates stability and reliability in dividend payments, which is favorable for investors. Therefore, Waste Management (WM) meets the criterion of stability in dividend payments over the past two decades.

Dividends Paid for Over 25 Years?

The criterion of paying dividends for over 25 years is important as it indicates the company's commitment to returning value to shareholders through regular income. It also signals stability and reliability in its financial performance.

Waste Management (WM) has shown a consistent and increasing dividend payout for over 25 years, which is a very encouraging sign for investors. Starting from a modest $0.02 per share in 1998, the company's dividend per share has grown significantly to $2.8 in 2023. This upward trend, particularly with substantial increases starting in 2004, indicates a strong financial health and a reliable dividend policy. The growth from $0.752 in 2004 to $2.8 in 2023 represents an average annual growth rate of approximately 9.86%. This long-term consistency and substantial growth in dividends are positive indicators for dividend-seeking investors.

Reliable Stock Repurchases Over the Past 20 Years?

Criterion: Reliable Stock Repurchases over the Past 20 Years

Over the last 20 years, Waste Management (WM) has demonstrated a commitment to stock repurchases. The number of shares has declined from 594,339,623 in 2003 to 404,900,000 in 2023. This consistent reduction indicates regular buybacks, which can increase earnings per share (EPS) by reducing the number of outstanding shares. Reliable stock repurchases are generally considered favorable as they signify a company's confidence in its financial health and future prospects. For WM, the average repurchase rate of -1.8909% per year supports the view of consistent buybacks. Despite slight inconsistency during certain years like 2013, overall, this trend is positive.