4 Reasons to Love Waste Management's Dividend

Key Points

• Dividend growth has been robust, stretching back decades.

• Cash generation is trending higher this year, improving dividend safety.

• The stock is not cheap, but a durable business like this deserves to trade at a high valuation.

• 10 stocks we like better than Waste Management ›

Investors looking for dividend income do not have to choose between income and business quality. Waste Management (NYSE: WM), the largest North American provider of waste collection, recycling, and landfill services, offers a mix of both. The company's scale, long contracts, and essential services translate into reliable cash flows that can support a growing payout over time.

Rather than chasing dividend yield, a better approach is arguably to look for a dependable and steadily rising dividend funded by consistent cash flow from the underlying business. WM is a textbook example of this.

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Here are four reasons the waste and recycling leader's dividend stands out right now.

1. A double-digit dividend increase

WM's board approved a substantial 10% dividend rate hike for 2025, lifting the quarterly payout from $0.75 to $0.825 per share (or $3.30 annually). That decision extended the company's streak of annual increases to 22 years. For income-focused investors, a record like that signals discipline and confidence in the cash engine behind the business.

2. A sustainable payout

A dividend is only as strong as the cash that funds it. In its second-quarter update, WM raised its full-year free cash flow outlook to between $2.8 billion and $2.9 billion. That upgraded view points to more cushion behind the payout and optionality for buybacks and reinvestment.

Note that the company's cash flow statements show that WM only paid out about $1.3 billion in dividends over the trailing 12 months, so there's plenty of wiggle room in the company's current payout.

3. Business momentum is supportive

Supporting its dividend with a growing business, WM's core collection and disposal franchise -- household pickup, commercial routes, and landfills -- posted robust 7.1% year-over-year revenue growth in Q2. Total revenue rose to about $6.4 billion, up 19% year over year. Of course, the company's late 2024 acquisition of medical waste and secure information destruction business Stericycle helped bolster this growth rate.

In the company's second-quarter earnings release, CEO Jim Fish pointed to WM's robust organic growth and expense efficiency in its legacy operations as evidence of how the company is making progress "on all fronts."

Highlighting how the company's efficiency is reflected in its financials, WM's operating EBITDA margin closed in on 30% during the quarter, approaching historically high levels for the company despite expense headwinds associated with the ongoing integration of its healthcare solutions business.

"This result was achieved because our legacy business continued to deliver margin expansion and because we are quickly improving the cost structure of healthcare solutions," said WM chief financial officer Devina Rankin in the company's second-quarter earnings call.

4. An essential service

Trash still needs to be collected in good times and bad, and WM's contract-heavy model has shown resilience in all types of macroeconomic environments. Additionally, the company is also investing in recycling and renewable natural gas projects -- two other economically resilient businesses that can help expand WM's profit over time.

Some risks include fluctuations in recycled commodity prices, ongoing integration work in its healthcare waste disposal services, and the drag of higher interest expenses from its debt on the balance sheet.

With a price-to-earnings ratio of about 32 as of this writing, shares command a premium valuation multiple. But WM arguably deserves this multiple, as it reflects quality and visibility. Of course, the downside is that it leaves less room for error.

Overall, WM's steady operating momentum, robust free cash flow, and a conservative payout relative to its cash flow support continued dividend increases alongside ongoing investment in the business. For investors seeking reliable income growth from a high-quality operator, WM -- with its 1.5% dividend yield and a dividend likely to grow meaningfully over the long term -- is worth a closer look.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool recommends Waste Management. The Motley Fool has a disclosure policy.