Waste Management Inc. (NYSE: WM) and Republic Services Inc. (NYSE: RSG) are a duopoly among waste removal stocks. The two companies have a combined market share of around 55%-60%. It’s highly likely that your trash removal service is from one of these two companies.
Waste removal is often thought of like electricity, water, or gas. That is, a boring business model with below-average market returns. However, there’s a big investment opportunity in these stocks, as long-time investors would know.
In the last 10 years, the average annual total return (stock price growth + dividends) of the S&P 500 has been approximately 10% to 11% per year. Which means that’s the return you would have received if you had invested in the SPDR S&P 500 ETF Trust (NYSEARCA: SPY), a benchmark index for the S&P 500.
That’s a solid return and well above the average rate of inflation. However, several stocks you could have owned would have garnered an average return of three times that of the SPY and even higher.
The best part is that you could have had this return without venturing into risky penny stocks of unprofitable companies. Instead, you could have been sleeping well at night with your money invested in cash-rich companies that have beaten the pants off the total return in the S&P 500.
The takeaway is that waste removal will continue to be big business. That’s why there’s still an opportunity with these attractive waste removal stocks.
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Waste Management (WM): Turning Waste Removal into Long-Term Cash Flow
Waste Management is considered the creme de la creme of waste removal companies. The company has about one-third of the total market share in the United States. That revenue is contracted by municipal and commercial customers.
In fact, about 90% of the company’s total revenue comes from trash collection services. This gives the company strong annual recurring revenue and makes it an attractive “all-weather” stock for risk-averse investors. Plus, the company has nearly unmatched pricing power that turns that revenue into profits that it can put back into the business or return to shareholders.
However, the long-term story for Waste Management is about sustainability. About 7% of the company’s revenue comes from its recycling business. The company has about 17.5% of this market currently and sees it as one of its primary growth drivers over the next few years.
Recycling is only one part of Waste Management’s overall sustainability narrative. The company is also making significant investments in renewable energy, specifically renewable natural gas (RNG).
The company has invested approximately $1.6 billion towards the completion of 20 RNG plants. These plants convert landfill methane into fuel that the company can use for its fleet and other customers. In addition to the sustainability angle, these initiatives (recycling + RNG) are expected to deliver between $760 million and $800 million of incremental annual adjusted operating EBITDA.
Over the last decade, WM stock has delivered a total return of over 380%, more than triple the S&P 500’s average. At 31x earnings and 27x forward earnings, WM stock is trading at a premium to the S&P 500. However, it’s trading at a discount to its own historical average, which adds to the Waste Management bull case. Analysts are forecasting 13% earnings growth in the next 12 months.
Plus, free cash flow is now projected to be between $2.8 and $2.9 billion. This means Waste Management should have no problem sustaining and growing its dividend, which it has increased for the last 22 years.
Republic Services (RSG): Efficiency, Scale, and ESG Tailwinds
Republic Services is the clear number two behind Waste Management in terms of market share, claiming about 20% of the market. About 65% of the company’s revenue comes from its Recycling and Waste business (about $105 billion).
This presents investors with an attractive baseline of annual recurring revenue backed by long-term contracts. Republic Services also has a 94% retention rate on those contracts.
Like Waste Management, Republic Services is committed to sustainability in more ways than recycling. The company’s Sustainability Innovation Center is driving growth in advanced recycling technologies as well as circular economy solutions and renewable energy recovery.
In the last 10 years, RSG has delivered a total return of over 580%, nearly five times that of the S&P 500 and better than WM stock. Included in that is the company’s dividend, which it has increased for 22 consecutive years. For its 2025 fiscal year, Republic Services is forecasting free cash flow between $2.375 and $2.415 billion.
And like Waste Management, RSG stock is attractively valued even at 33x earnings, which is a discount to its historical average.
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