Don't Give Up on Dividends: This Rock-Solid Dividend Stock Will Reward You Through Thick and Thin

It's easy to give up on dividends when the major indexes are roaring to all-time highs. After all, what good are a few percentage points of yield when the S&P 500 (SNPINDEX: ^GSPC) is up 17% year to date?

WM (NYSE: WM), formerly Waste Management, sold off after reporting third-quarter 2025 earnings. The stock has gone practically nowhere over the past year despite the broader market rally.

Here's why WM is a great buy for risk-averse investors looking to boost their passive income.

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Recycling and healthcare are underperforming

For the third quarter, WM reported $1.98 in adjusted diluted earnings per share, missing analyst consensus estimates for $2.01. That's just 1% growth compared to the same quarter in 2024. WM's core collection and disposal business generated record results in the latest quarter. But neither its healthcare solutions nor its recycling processing and sales segments delivered.

WM operates an integrated waste collection, transportation, and disposal business for residential, commercial, and industrial customers. It also has a growing recycling and renewable energy business, driven by converting landfill gas into reusable pipeline-quality gas. WM has also been growing its healthcare solutions business, which provides environmental services for the healthcare industry.

Healthcare solutions revenue came in below expectations, as WM said it was deferring some planned price increases to prioritize customer lifetime value.

Revenue declined by $60 million in the recycling processing and sales segment due to lower market prices for recycled commodities, including a 35% drop in the blended average price of single-stream commodities. Single-stream recycling incorporates different materials, like glass, cardboard, and paper into one bin rather than separating these materials out during the collection process. This approach can boost recycling participation and collection costs, but it increases processing costs.

Demand for recycled materials is down, as WM received just $68 per ton for single-stream recycled commodities, down from $101 per ton a year ago. WM is guiding for $75 per ton for 2025, down from its prior guidance of $80 per ton. WM also received $2.56 per Renewable Fuel Standard credit, down from $3.08 a year ago. The decline in single-stream recycling commodities and renewable credits underscores market shifts in monetizing sustainability, a major source of capital expenditures for WM in recent years.

All told, WM is guiding for total company revenue of $25.2 billion for 2025 -- at the low end of its prior guidance range. WM attributed lower recycled commodity pricing and lower revenue expectations from healthcare solutions as the driving factors behind the weak guidance.

Investing through the cycle

Despite the poor results, WM remains a cash cow that can easily afford to grow its dividend. WM is guiding for 2025 free cash flow (FCF) of $2.8 billion to $2.9 billion and a whopping $3.8 billion in 2026 FCF. For context, WM paid just over $1 billion in dividends in the nine months ended Sept. 30, so it is generating far more FCF than needed to cover the dividend.

Based on its market cap of $83.61 billion at the time of this writing and 2026 FCF projections of $3.8 billion, WM would have an FCF yield of 4.5%. FCF yield basically tells investors the hypothetical dividend the company could pay if it distributed all of its FCF to shareholders through dividends. WM isn't doing that, as its dividend is $3.30 per share for a yield of 1.5%.

The outsize FCF is useful because it gives WM the breathing room needed to grow its dividend and support long-term investments in recycling, renewables, and healthcare, even if those segments have near-term challenges.

Last December, WM raised its dividend by 10% -- marking the 22nd consecutive year it boosted its payout. Given its high FCF projections for 2026, I would expect a similar-size raise later this year or early next year.

A reliable dividend stock for all market conditions

WM is an excellent dividend stock because it generates a ton of FCF and provides services that are needed regardless of the economic cycle. However, WM does even better when there's economic growth in industrial and commercial activity, as well as demand for its sustainability-focused services and healthcare.

The stock may not have the glitz and glam of high-octane artificial intelligence growth companies. But it's an excellent choice for risk-averse individuals who are more focused on preserving capital and generating income than shooting for the stars with outsize gains.

Due to the quality of its business model, WM stock has historically sported a lofty valuation. But the valuation has become more reasonable, with the stock trading at 27.4 times 2025 projected earnings at the time of this writing. It's not dirt cheap, but consider that WM's 10-year median price-to-earnings ratio is 29.4 -- showcasing how investors have historically been willing to pay a premium price for the stock.

With valuations stretched across many leading companies, investors may want to consider mixing in some safe stocks like WM to ensure that their portfolios aren't overly concentrated on a single theme or stock market sector.

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool recommends WM. The Motley Fool has a disclosure policy.