For all the talk about environmental responsibility and sustainability, the role that haulers play in that equation is frequently overlooked.
Investors shouldn’t make that mistake. Take the case of the VanEck Vectors Environmental Services ETF (EVX). EVX doesn’t get the attention it deserves in the environmental investing conversation, but the exchange traded fund has quadrupled in value in its nearly 15 years on the market.
Trash hauling is also a surprisingly profitable industry when operators properly execute. EVX’s long-term track record proves as much.
“Two private companies, Waste Management and Republic Services, lead the solid waste management sector. Together they own about 480 landfills out of the 2,627 landfills across the United States. The two companies have seen staggering performance in the market, with the stock prices of both doubling in the past five years,” reports Nathaniel Lee for CNBC.
Republic Services (RSG) and Waste Management (WM) are EVX’s top two holdings, combining for almost 20% of the ETF’s weight, according to issuer data.
Don’t Ditch This ETF
EVX, which follows the NYSE Arca Environmental Services Index, holds 24 stocks, highlighting the concentrated nature of the environmental services industry.
Of note to long-term investors is the mostly recession-proof nature of this business – folks always need trash hauled – and the toll road-like revenue model offers top- and bottom-line visibility.
“In 2020, municipal solid waste landfills had an average tipping fee of $53.72 per ton. That translates to roughly $1.4 million a year in approximate average gross revenue for small landfills and $43.5 million a year for large landfills just from gate fees,” according to CNBC.
Tipping fees are what landfills charge trucks for dropping off trash and like any other fee, there’s room for increases. Tipping fees have nearly tripled since 1982.
EVX also offers two ESG-related opportunities. First, some landfill operators generate addition through a practice known as mining. That occurs when aging landfills are searched for materials that can be recycled into other products.
Additionally, scientific advancements allow for the methane gas emitted at landfills to be harnessed and turned into usable power, creating another revenue stream for some EVX components.
“According to the U.S. Energy Information Administration, landfill gas generates about 10.5 billion kilowatt-hours of electricity every year. That’s enough to power roughly 810,000 homes and heat nearly 547,000 homes each year,” reports CNBC.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.