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These Bears Are In The Garbage

By Ayton MacEachern

Tickers in this Article: ECOL, ES, AW, CCC, VE, DCI

In a world that is becoming more environmentally conscious every day, companies involved in the remediation of hazardous waste, recycling, water purification, and garbage disposal are hot items on the stock exchanges.

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For example, American Ecology (Nasdaq:ECOL) is trading near its 52 week high of $32.20. True, American Ecology is a smaller company, with a market capitalization of less than $600 million, and recent quarterly revenue growth of about 19%; but why can companies like this one do so well, when the sector at large has arguably been doing poorly?

In an sector that I am interested in, I am always excited to see a few companies that have come off of their highs, because it provides good entry points, and higher dividend yields. Obviously before jumping straight into these decliners is not prudent, and a bit of homework needs to be done first.

Company	One Month Loss*	Market Capitalization
Energy Solutions (NYSE:ES)	19.2%	$2 billion
Allied Waste Industries (NYSE:AW)	16.3%	$5 billion
Calgon Carbon (NYSE:CCC)	16.1%	$639 million
Veolia Environnement (NYSE:VE)	14.2%	$24 billion
Donaldson (NYSE:DCI)	12.9%	$3 billion
Data as of market close July 17, 2008

Dividends Cover the Smell
When a company's share price falls, the yield of any dividend it distributes increases. Assuming the company does not decrease its dividend, it begins to cost an investor less to purchase that distribution. Having a regular dividend paid also cushions any future declines that still may come. As we all know, it is impossible to perfectly time a bottom, and even if it is the best sector available, prolonged declines can continue to be seen every now and then. So, for this reason, I only want to look at a bear here that is providing a dividend to its shareholders.

Veolia Environnement (NYSE:VE) is a globally diversified waste management company, with a dividend currently yielding more than 6%. Based out of Paris, France, Veolia provides waste water treatment and recycling, janitorial services, soil decontamination, industrial waste discharge management, heating and cooling systems, rail freight transport, vehicle maintenance, and airport baggage services. As you can see from this list, calling Veolia "diversified" would be an understatement.

Veolia, like many companies in this sector has a lot of debt - $29 billion to be exact. This is because of the very high infrastructure costs that are needed to be able to provide its services. In a lower interest environment like we are in right now, this is less of a problem, but it is definitely something to watch closely. If interest payments cannot be made, dividends are likely to be the first thing cut. The stock's current ratio of slightly less than 1 calms my fears slightly on this, as I know that it has current assets to at least match its current liabilities.

For its size, Veolia also has impressive growth. Its year-over-year quarterly revenue growth is 17% currently - pretty solid for a company of its breadth. When I see a company as diversified in its services as Veolia, the question always comes to mind, can it continue to grow quickly with that much going on? This large growth, and the fact that Veolia should be able to cover its short-term liabilities, leads me to think that the dividend is safe for now. (To learn more, read Is Your Dividend At Risk?)

The demand for waste services will only increase as the global population continues to increase. Veolia seems like a company with good prospects going forward, and it offers a nice dividend to get investors through the hard times.

Add Your Two Cents
What do you think will happen with Veolia Environment going forward? Will its globally diversified approach give Veolia returns above and beyond its sector counterparts? Be sure to join me (aytonmm) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.

For further reading, be sure to check out Clean Or Green Technology Investing.

By Ayton MacEachern

Ayton MacEachern is the Senior Financial Editor at Investopedia.com. After receiving his bachelor's degree in financial services from Mount Royal College in Calgary, Alberta, MacEachern began his career at an international securities trading firm. Before joining Investopedia in 2008, MacEachern worked in a variety of roles in the financial industry, including workers' compensation insurance underwriting, financial planning, and equity, currency and options trading. MacEachern is also Co-Founder of theskipper.ca, a source for online outdoor education.

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