Americans Will Throw Away 25% More Trash Over the Holidays -- and These Companies Are Happy to Clean

By Markets Fool.com

We all know that the period from Thanksgiving to New Year's Day is a festive time of year. Friends, family, food, gifts -- the list of positives is lengthy. But here's one negative you might not know: Americans produce 25% more trash during the holidays than during equal periods the rest of the year.It's just a friendly yuletide reminder that trash haulers Waste Management and Republic Services deserve a little holiday shout out, since their 3% or so dividend yields can give you a gift all year long.

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A happy and dirty time of year
Between the fourth week of November and Jan. 1, Americans will throw out 6 million tons more refuse than normal. That's roughly a million tons a week more than normal. The 2.6 billion plus Christmas cards mailed in this country each year would fill a box with a volume of 5.7 million square feet (imagine the present that would fit in that box).And, while not specific to the holidays, half of the paper consumed in the United States in a yearis used to wrap and decorate consumer products.

Source: Vouliagmeni, via Wikimedia Commons.

I bet you didn't know the holiday cheer you were spreading created so much garbage! But don't worry, you can do something about it: buy stock in companies that handle all that trash.

Cleaning up all year long
Waste Management is by far the largest U.S. trash hauler, sporting a $22 billion market cap. The company has operations from coast to coast and collects your trash, operates landfills, runs trash-fueled power stations, and recycles. After falling to $11.8 billion in 2009, revenueshave been on a slow and steady upward climb to just under $14 billion in 2013. The dividend, meanwhile, has increased annually for over a decade.

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Wall Street expects revenue to reach $14.1 billion this year, with a drop next year to $13.6 billion. However, earnings are projected to jump from about $2.40 a share this year to roughly $2.50 in 2015. The reason is largely a changing business mix, as Waste Management refocuses around cost-cutting and continuing to balance a strategic shift from a trash company to an "environmental" company. Its "green" efforts include a focus on recycling, using landfills to create electricity, and an increasingly clean fleet of garbage trucks.

That said, U.S. trash markets are still recovering from the 2007-2009 recession, and recycling, though important over the long term, has been a drag in the near term. These, however, are industry wide trends. The thing to watch is how Waste Management reacts. For example, it is divesting a business that burns trash to produce electricity because weak power markets turned it into a laggard business (thus the uptick in 2015 earnings despite the expected top-line drop). But with the company's 3% yield and a long history of annual dividend hikes, you're being paid well to wait for this industry-leading, necessity business to get things rolling again.

The industry's No. 2 player...
Republic Services, meanwhile, has a roughly similar business profile, but with a market cap of nearly $14 billion its a much smaller No. 2 in the industry. That, however, can provide some benefits, since acquisitions of local players, a common occurrence in the fragmented industry, will have a greater impact on the top and bottom lines.

Source: ReubenGBrewer, via Wikimedia Commons.

Annual revenue essentially flatlined between $8.1 billion to $8.2 billion from 2009 to 2012 after the 2008 merger ofRepublic Services andAllied Waste that turned the company into what it is today. That merger couldn't have come at a worse time, however, as the aftermath of the recession left waste volumes low and contract pricing weak. Revenuesfinally jumped out of their tight range last year, hitting $8.4 billion.Wall Street expects revenue to hit $8.8 billion this year and $9.1 billion in 2015.

Earnings stepped up from about $1.30 a share in 2009 and 2010 to $1.55 the next two years. This year, Wall Street is looking for another step up, to $1.90 a share, with 2015 pegged around $2 a share. Indeed, despite a weak pricing and volume environment, Republic was able to find merger synergies and keep the top line moving higher. To the company's credit, it's operating margin has historically been around three percentage points higher than its larger rival. Dividends have increased every year for the past decade, and the yield is just under 3%.

Republic appears to be over the hump of both its acquisition and the recession. So watch for slow and steady growth on the top and bottom lines here, keeping a keen eye on contracted prices on both new and renewed business.Like Waste Management, the pricing environment is a notable headwind that will take time to fix, particularly while interest rates remain low since the industry has historically made use of inflation linked pricing in contracts. And contracts tend to be multi-year in nature.

Hidden value
Just collecting trash, however, isn't what makes these companies so special. It's what they do with it, and that revolves around landfills. It is increasingly difficult to open such trash repositories, so being large owners of existing landfills provides Waste Management and Republic with a strategic advantage over smaller players. This should, over time, also provide pricing power over customers eager to rid themselves of all that holiday trash.

While times might be relatively lean today, both companies possess important assets that will leave them ready for better days down the road. Both trade at a little under 20 times projected 2015 earnings, which isn't cheap, but compared to the industry's current average P/E near 50, it's not outlandish, either. And then there's the regularly increased dividends. So consider giving yourself a gift of Waste Management or Republic Services this holiday season: an act of kindness that should let you throw your extra trash out with some gusto!

The article Americans Will Throw Away 25% More Trash Over the Holidays -- and These Companies Are Happy to Clean It Up originally appeared on Fool.com.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Republic Services and Waste Management. The Motley Fool owns shares of Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.