This dividend stock could be a strong candidate for boosting your passive income as we look ahead to 2026.
It’s easy to become disillusioned with dividends, especially when major indexes, like the S&P 500, are reaching new highs. I mean, what’s the point of a few percentage points? Isn’t the S&P 500 up about 17% this year?
W.M. (previously Waste Management) experienced a drop after announcing their Q3 2025 earnings. Interestingly, stock prices have hardly wavered over the past year, even with a rising market overall.
This makes WM an appealing choice for conservative investors aiming to increase their passive income.
Challenges in Recycling and Healthcare Sectors
For the third quarter, WM reported adjusted diluted earnings per share of $1.98, which was below the analysts’ expectations of $2.01. This marks a modest 1% increase from the same quarter last year. While WM’s core waste collection and disposal segment performed well, the healthcare solutions and recycling processing divisions struggled.
WM is involved in a wide range of waste management activities, including residential, commercial, and industrial services. They are also expanding into recycling and renewable energy, like converting landfill gas into usable pipeline-quality gas. Moreover, they’re growing their Healthcare Solutions division, which focuses on providing services to the healthcare sector.
However, healthcare sales fell short of expectations, as WM decided to delay some planned price increases to enhance customer relations.
In recycling, WM saw revenues decrease by $60 million, largely due to a drop in market prices for recycled materials. Single-stream recycling—which combines various materials like glass, cardboard, and paper into one container—has seen a 35% fall in average blended prices. Though this approach boosts recycling engagement, it does ramp up collection and processing expenses.
Demand for recycled products is weakening, with WM getting only $68 per ton for single-stream recycled goods, a decline from $101 per ton last year. They’ve adjusted their 2025 forecast down to $75 per ton from an earlier estimate of $80. Additionally, they received $2.56 per Renewable Fuel Standard credit, down from $3.08 a year prior. This shift in the recycling landscape highlights challenges in monetizing sustainability efforts, which have been significant for WM’s investments in recent years.
Overall, WM anticipates total revenue of $25.2 billion for 2025, landing at the lower range of previous forecasts. The company attributes this to decreasing recycled commodity prices and lower revenue expectations from their healthcare segment.
Navigating Through Economic Cycles
Despite its struggles, WM remains a cash-generating powerhouse capable of increasing its dividend. The company expects free cash flow (FCF) to be between $2.8 billion and $2.9 billion in 2025 and could reach as high as $3.8 billion in 2026. For context, WM distributed just over $1 billion in dividends in the nine months ending September 30, so they’re generating ample FCF to easily cover the dividend payout.
With a market cap of $83.61 billion and projected FCF of $3.8 billion for 2026, WM’s FCF yield stands at 4.5%. This yield indicates what dividend the company could theoretically distribute if it allocated all FCF towards dividends, but in reality, their current dividend is $3.30 per share, giving a yield of 1.5% instead.
This excess FCF is advantageous, allowing WM the flexibility to grow its dividend and invest in its recycling, renewable energy, and healthcare segments, despite facing short-term challenges.
Last December, WM raised its dividend by 10%, signaling the 22nd consecutive year of increases. Given the promising FCF projection for 2026, I think a similar hike could be on the horizon later this year or early next year.
Steady Dividend Stocks Across Different Market Conditions
WM stands out as a strong dividend stock due to its robust FCF generation and essential services that remain relevant regardless of market cycles. In fact, it performs even better during periods of industrial and commercial growth, as well as heightened interest in sustainable services and healthcare.
This stock may lack the allure of a high-tech growth company, but it’s a solid choice for investors who prioritize capital preservation and income generation over chasing high-risk returns.
Historically, WM stock has been valued for its strong business model. While it’s currently trading at 27.4 times anticipated 2025 earnings, which isn’t exactly cheap, it’s a notable drop from its median 10-year price-to-earnings ratio of 29.4. This suggests that investors have typically valued this stock at a premium.
In a landscape where valuations are varied, it might be wise for investors to consider diversifying with reliable stocks like WM to avoid being overly concentrated in any single theme or sector.
