This Trash‑Hauling Giant Could Be the Only Industrial Stock I'd Buy and Never Sell
Key Points
WM is the undisputed leader in trash collection.
The company's massive scale enhances its ability to deliver resilient results throughout the economic cycle.
It has a strong history of growing shareholder value, which should continue.
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Industrial stocks tend to be very cyclical. Their revenues and stock prices typically rise during an economic expansion and fall during a recession. That cyclicality makes them more difficult to buy and hold long-term, since it often makes sense to sell when the economy appears to be nearing a cyclical peak.
However, garbage collection tends to be a relatively resilient business. That's why trash-hauling giant WM (NYSE: WM) might be the only industrial stock I buy and hold forever.
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Image source: Getty Images.
King of the garbage pile
WM is the leader in providing environmental solutions. It has North America's largest disposal network and collection fleet. It's also the largest recycler and a leader in producing and using renewable natural gas (RNG). WM also provides regulated medical waste and secure information destruction services. The company's vertically integrated asset network of 506 waste transfer facilities, 262 landfills, 105 recycling facilities, and 18 medical waste incinerators gives it unmatched scale in the industry. It's the largest player in the $125 billion North American waste and recycling sector with $22.1 billion of revenue.
The company's industry-leading operations enhance its ability to deliver results throughout the economic cycle. For example, its 2019-2021 financial targets included delivering 4%-6% organic compound annual revenue growth and 5% to 7% compound annual adjusted operating earnings and free cash flow growth. While the pandemic slowed its revenue growth rate to 3% annualized during that period, the company delivered high-end earnings growth (7%) and meaningfully faster free cash flow growth (14%). Meanwhile, WM has delivered even better results in the 2022-2024 period (compound annual growth rates of 6% in revenue, 9% in earnings, and 13% in free cash flow).
Turning trash into cash and shareholder value
WM's trash hauling and recycling businesses generate robust cash flow. It produced $6 billion in net cash flow from operating activities last year (up 12.1% from 2024) and $2.9 billion in free cash flow (up 26.8%). WM is allocating its robust cash flows into growing its business and shareholder value. It spent $400 million to acquire solid waste and recycling businesses last year. It's also investing $3 billion in sustainability growth projects (new and upgraded recycling facilities and RNG facilities) from 2022 through this year.
The company's investments position it to continue growing its operations and shareholder value. WM expects to grow its free cash flow (before sustainability investments) at a nearly 8% compound annual rate through 2027, putting it on track to generate $4.1 billion next year.
That's giving the industrial giant more money to return to shareholders. WM raised its dividend by 14.5% late last year, extending its growth streak to 23 straight years, making it a leading dividend stock. It also announced a new $3 billion share repurchase authorization.
This combination of earnings growth and rising shareholder returns positions WM to continue delivering robust total returns. Over the past decade, WM has generated an annualized total return of 16.8%, outpacing the S&P 500's 13.1%.
A durable industrial stock
WM isn't your average industrial stock. It operates a highly resilient business that can deliver steady growth and shareholder returns throughout the economic cycle. That's why it might be the only industrial stock I never sell.
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Matt DiLallo has positions in WM. The Motley Fool recommends WM. The Motley Fool has a disclosure policy.
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