The Motley Fool: Recession-resistant and dividend-paying

With tariff and inflation concerns in the air, it’s reasonable to worry about a possible recession. Some companies hold up better during economic slowdowns. One to consider is Waste Management (NYSE: WM), rebranded simply as “WM.” The largest North American waste services specialist, it “provides collection, recycling and disposal services to millions of residential, commercial, industrial, medical and municipal customers throughout the U.S. and Canada.”

As the population and economy expand, the need for trash and recycling collection, transportation and processing grows. WM is steadily growing its operating profit margin and free cash flow – boosted in part by its 2024 acquisition of medical waste company Stericycle.

With a recent forward-looking price-to-earnings (P/E) ratio of 25, WM’s shares are not cheap, but this stock often trades at a premium valuation. The company’s stable free cash flow is used to grow its dividend, repurchase stock and reinvest in the business. The dividend recently yielded 1.5%, and it has been increased for 22 consecutive years (most recently by 10%).

WM stands out as an ultra-high-quality dividend stock, best suited for investors looking to collect a dividend on a strong growth company. It’s literally turning trash (and recycling) into treasure. (The Motley Fool recommends WM.)

Ask the Fool

Q. What are Treasury notes? – A.V., Mililani, Hawaii

A. They’re U.S. government-issued debt securities, with maturity terms of two, three, five, seven or 10 years. (Treasury bills, in contrast, mature within four to 52 weeks, and Treasury bonds have terms of either 20 or 30 years.) Investors buying a Treasury note are essentially lending money to the government, and they’re promised a fixed interest payment every six months until the note matures. They can hold the note until maturity, or they can sell it before that.

Many corporations also raise money by selling notes (as well as bonds, which tend to have longer maturities). Treasury securities generally feature lower interest rates because the U.S. government is viewed as less risky than companies.

Q. The Dow was recently at 46,316. What does that number actually mean? – D.D., Elyria, Ohio

A. The Dow Jones Industrial Average, often referred to as “The Dow,” is a U.S. stock market index dating back to 1896. It began with just 12 companies but has long included 30 – such as Amazon.com, Boeing, Coca-Cola, Nike, Procter & Gamble, Visa and Walmart.

The value of the Dow is a weighted average of those 30 companies’ stock prices. The weighting is complicated: It requires adjustments to account for stock splits, dividends and various changes to the index’s component companies – not to mention the occasional addition and removal of companies. To arrive at the current value for the Dow Jones Industrial Average, you add the share prices of the 30 component stocks (which range from a recent $41.32 for Verizon Communications to $776.51 for Goldman Sachs) and divide by the Dow’s “divisor” (which is updated often but was recently 0.16268413125742).

My smartest investment

In the early 1980s, Consumers Power, a large power company in Michigan, was building a nuclear power plant in Midland to generate energy for the grid as well as industrial steam for local industries. The plant was plagued by financial and construction problems (it was sinking into the ground!), and the stock plummeted, with some predicting bankruptcy. I figured that a major state-regulated utility would not go bankrupt. Although I was a poor assistant professor with a family of five, I scraped up $1,200 and bought 200 shares. The utility abandoned the nuclear reactor soon after my purchase and has since thrived. (It changed its name in 1997 to Consumers Energy, a subsidiary of CMS Energy Corp.) My shares are now worth more than $14,000 – plus we get hundreds of dollars in dividends each year. My $1,200 investment has returned more than $20,000. – D.K., online

The Fool responds: You did well indeed. In general, it can be risky to invest in companies at risk of bankruptcy, but as you noted, some do recover. It’s smart to dig deep into any struggling company before investing in it. Your story also points to the value of investing in dividend payers, as they can keep paying you (often increasing) sums for many years.

Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.