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

WM reported Q3 2025 adjusted EPS of $1.98, missing analyst estimates, with the stock underperforming the S&P 500 as its core business strength was offset by underperformance in recycling and healthcare segments. Revenue from recycling declined due to lower commodity prices, while healthcare solutions saw deferred price increases, leading to a revised 2025 revenue guidance of $25.2 billion at the low end of prior expectations. Despite these near-term headwinds, WM forecasts robust free cash flow of $2.8-$2.9 billion in 2025 and $3.8 billion in 2026, which is expected to comfortably support continued dividend growth and positions the company as a stable income investment.

Analysis

WM reported Q3 2025 adjusted diluted EPS of $1.98, missing analyst consensus estimates of $2.01, representing only 1% year-over-year growth. This underperformance, coupled with the stock going "practically nowhere" over the past year, contrasts sharply with the S&P 500's 17% year-to-date rally. While the core collection and disposal business achieved record results, the recycling and healthcare segments disappointed.

Revenue in the recycling processing and sales segment declined by $60 million due to a 35% drop in the blended average price of single-stream commodities, with prices falling from $101 per ton a year ago to $68 per ton. Healthcare solutions revenue also came in below expectations as WM deferred planned price increases. Consequently, WM revised its 2025 total company revenue guidance to $25.2 billion, the low end of its prior range, attributing this to lower recycled commodity pricing and healthcare revenue.

Despite these near-term headwinds, WM projects robust free cash flow (FCF) of $2.8 billion to $2.9 billion in 2025 and a significant $3.8 billion in 2026. This substantial FCF, far exceeding the $1 billion paid in dividends over the past nine months, provides ample capacity for continued dividend growth, marking 22 consecutive years of increases. The projected 2026 FCF implies a 4.5% FCF yield based on its $83.61 billion market cap.

WM's valuation, trading at 27.4 times 2025 projected earnings, is below its 10-year median P/E of 29.4, suggesting a more reasonable entry point. The company's essential services business model offers defensive characteristics and income generation, making it an attractive option for risk-averse investors seeking capital preservation and diversification amidst a market with stretched valuations.

Key Decisions for Investors

• Monitor the trajectory of recycling commodity prices and the impact of WM's deferred healthcare price increases, as these are key drivers for segment recovery and future revenue guidance.
• Evaluate WM's strong and growing free cash flow generation as a reliable source for consistent dividend increases, positioning it as a defensive income play in volatile markets.
• Consider WM for portfolio diversification, leveraging its essential services business model and more reasonable valuation relative to its historical premium and broader market conditions.