Will somebody please take out the trash?

Pretty sure I made this request yesterday. And then again this morning. Yet, there it sits, piling up in the corner of the kitchen. Once again, I’ll have to lug it down the driveway myself or else run the risk of missing our weekly trash removal service. Nobody wants that.

Still, I’m happy to at least have curbside pickup. For years, we lived in a rural area with no municipal service, which meant loading up the bins ourselves and hauling them to the nearest county dump… and even less pleasant task.

This gated site held five massive containers, each the size of a city bus. But they too had to be emptied on a regular basis, their overflowing contents trucked to a regional landfill somewhere.

Everyone acknowledges the importance of these designated dumping grounds, but nobody wants to live downwind of one. It’s a classic case of NIMBY (not in my backyard). Given the public backlash at zoning hearings — and stacks of permits that must be obtained — it’s nearly impossible to build new landfills in many states.

That makes the existing ones as good as gold. I mean that quite literally. These mountains of discarded trash can sometimes be more profitable than gold mines.

300 Million Tons…and counting
Thankfully, about one-third of the nation’s trash is either recycled or composted. Dedicated efforts have quadrupled the amount of glass, batteries, aluminum cans, cardboard boxes, and other products tossed in recycling bins since 1980.

But the rest of our municipal solid waste (MSW) is sent to landfills. And volumes aren’t getting any lower. Back in 1960, the country generated 88 million tons of municipal waste. Today, we produce nearly 300 million tons annually, about five pounds per person per day.

That includes kitchen leftovers of course, along with yard trimmings, milk jugs, junk mail, broken furniture and who knows what else. In case you’re curious, the Environmental Protection Agency (EPA) breaks down the tonnage totals by category on its website.

As we speak, fleets of garbage trucks are lined up ready to unload their “cargo” at the nearest landfill. But before the first trash bag is tossed, an access fee must be paid to the owner — known in industry parlance as a “tipping fee”.

Generally, tipping fees range from $50-$80 per ton, depending on location, capacity and other factors. And regardless of the economic weather, the United States produces about a million tons of garbage per day.

You can do the math.

Landfill owners rake in cash day and night. Ordinarily, such a lucrative business would attract competition. But local governments are rarely open to the idea of setting aside acreage for new sites, to say nothing of opposition from environmental advocates. Stringent federal regulations can be another layer of obstruction.

Despite steadily rising trash volume, there are fewer dumping sites now than there were forty years ago. According to the EPA, the number of domestic MSW landfills has shrunk from 6,000 in 1986 to less than 2,000 today.

There are few industries with higher barriers to entry. That lack of competition has dug a wide economic moat around a tight group of incumbent leaders.

Take WM (NYSE: WM), which owns a fleet of 12,000 vehicles serving more than 20 million residential and commercial customers. The company never runs out of trash to pick up, which means a steady, recurring stream of collection revenue.

I get billed $60 per month, even in the rare event our bin is empty.

Aside from this fixed, contractual income, the company also owns 286 active disposal landfills around the U.S. and Canada… each of which earns tipping fees around the clock. Including compactors, transfer stations and other critical infrastructure, WM handles 125 million tons of waste annually.

Business is good these days. Following the acquisition of Stericycle (the nation’s largest provider of medical waste services) revenues grew to $22 billion last year and profit margins topped 30% for the first time. Free cash flow (FCF) climbed 22% to $2.3 billion, funding healthy annual dividend distributions of $3.32 per share.

Then there is Covanta, whose waste-to-energy plants turn unwanted trash into clean, reliable power. These facilities take in 20+ million tons of municipal waste each year and convert it into 10 million megawatt-hours of steam-powered electricity.

This is a beautiful business model. Other power generators must pay for their raw materials (coal, uranium, natural gas, etc.). But this fuel source is free. Better than that — the company is paid to take it. As a bonus, it also recovers about half a million tons of valuable metals (ferrous and non-ferrous) each year that are stripped away, recycled, and then sold off at the going rate.

I added the stock to my portfolio a few years ago, but wasn’t surprised when a private equity group came knocking shortly after with a generous $5.3 billion takeover offer.

If this niche piques your interest, then you might want to keep a speculative eye on Clean Energy Fuels (NSDQ: CLNE).

Like landfills, dairy farms emit copious amounts of methane that can be captured, purified and converted into renewable natural gas (RNG). The California Air Resources Board has rated RNG as the cleanest transportation fuel available. Better still, it is also economical. While RNG can reduce smog-forming emissions, engines that burn this fuel also require less maintenance and have no need for costly diesel particulate filters (DPF) and selective catalytic reduction (SCR) systems.

With lower pump prices, fewer maintenance hassles, and compliance with environmental standards, it’s easy to see why many large transport companies have transitioned at least part of their fleets to RNG.

Clean Energy is a pioneer in this field. And I mean field literally, considering one of its newest biogas facilities was constructed on a Texas pasture with 16,000 cows. The vertically integrated business also operates 600 retail RNG fueling stations from Idaho to Virginia.

More than 50,000 natural gas-powered vehicles top off their fuel tanks at these stations each day. Tractor-trailers, school buses, taxis, airport passenger shuttles, mass transit vans, garbage trucks, etc. Some are open to the public, while others are reserved for specific municipal and commercial fleet customers like UPS, Hertz, McDonald’s and Coca-Cola, just to name a few.

Sales volume rose another 5% last year to 237 million gallons. Clean Energy now pumps more fuel in a quarter than it used to sell in a year. The stock has struggled lately. But looking ahead, there are four million Class 8 heavy-duty trucks in the U.S. that consume more than 40 billion gallons of diesel annually. Only a fraction will need to convert to cleaner renewable fuel to really move the earnings needle.

That’s if an opportunistic buyer like BP (NYSE: BP) doesn’t pounce first.