Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

September 9, 2009 - Waste Management Inc. (WM-NYSE) provides integrated waste management services in North America. The company offers collection, transfer, recycling, disposal, and waste-to-energy services. Its recycling operations include collection and materials processing, plastics and rubber materials recycling, electronics recycling services, and commodities recycling.

Further, the company offers portable self-storage, fluorescent lamp recycling services, and healthcare solutions services, as well as provides services on behalf of third parties for construct waste facilities. It serves commercial, industrial, municipal, and residential customers, as well as other waste management companies, electric utilities, and governmental entities.

Waste Management, Inc. has a joint venture with InEnTec, LLC to develop, operate, and market plasma gasification facilities using InEnTec's Plasma Enhanced Melter technology. The company was formerly known as USA Waste Services, Inc. and changed its name to Waste Management, Inc. in 1998. Waste Management, Inc. was founded in 1894 and is based in Houston, Texas.

There are 4 good reasons for conservative investors to consider WM: decent dividend of 4%, a strong financial statement (rated A by Value Line), a low beta (.51 which suggests low volatility) and a decent return on equity (18.4% in 2008). While revenues and earnings will be lower this year, the future appears bright.

Waste Management is going global with its recent purchase of a 40% interest in a Chinese waste-to-energy company. Prospects are good for 6 waste-to-energy plants in China up and running by the end of 2011. Management stated that it expects to start similar programs in Europe very soon.

Revenues will go down this year, to $11.87 billion or 11.3%. Next year, analysts think they'll go higher, to $12.12 billion or up 2.1%. Earnings will also descend, to $1.98, less than the $2.22 in 2008. In 2010, consensus is for $2.18. For the next 5 years, analysts see average annual growth of 11% for earnings.

Part of the reason for better earnings growth comes from better profit margins. Two restructuring programs have been implemented to positive effect. The first was consolidation of operating units, a reduction of administrative poistions and better training. The second, finished in June, eliminated certain staff positions in the marketing units and suspension of merit-based salary increases. Management stated the new programs generate pretax savings better than the original $30 million per quarter target.

On the revenue side, it's another story. Volume of waste is declining, down 8.6% in the second quarter compared to the same period last year with the industrial sector the weakest (down 19%). There was also a much lower price paid for used paper and cardboard, beginning in September of 2008 which impacts the recycling business. Energy prices were also lower, hurting the waste-to-energy profits. The 2010 estimate of higher earnings assumes an economic recovery as well as the stabilization to upward trend for recycle and energy prices.

The company still has strong cash flow with an Operating cash flow of $2.51 billion over the last 12 months. Much of that is used for dividends and stock buybacks. The board voted to resume the stock repurchase program in the third quarter. Analysts see an increase of $50 million in free cash flow in 2010 which would support another hike in the dividend. This year the dividend is $1.16 for a 3.9% yield.

More numbers: Trailing p/e is 16 while the Forward p/e is 13.8. Price to sales is 1.38. Price to sales is 1.18. Price to book is 2.41. Operating margin for the last 12 months was 16.72% while the Profit margin was 7.5%. Total cash is $528 million, making $1.07 in cash per share. Total debt is 8.24 billion or 56% of the capital structure. Book value is $12.33. There are 492.69 million shares outstanding with a float of 458.99 million. Insiders own 6.8% of the stock, institutiions, 83%.

Check into Waste Management if you're an investor who thinks waste isn't going to disappear any time soon, likes strong cash flow, a good dividend, and a company that is going global as waste-to-energy becomes ever more popular.

Company Web site: www.wm.com

Ted Allrich