1 Magnificent S&P 500 Dividend Stock to Buy for a Lifetime of Passive Income

Key Points

• Waste Management may be the epitome of a steady-Eddie business.

• It has a wide moat around its operations and has historically stomped the market.

• Waste Management raised its dividend payments by 10% this year, and there should be plenty more increases on the way.

• 10 stocks we like better than Waste Management ›

In an era when artificial intelligence (AI) and quantum computing stocks are generating more hype than ever, it is easy to overlook reliable compounders with wide moats. One of my personal favorites is North America's largest trash and recycling juggernaut, Waste Management (NYSE: WM).

Since the turn of the millennium, Waste Management has been a 23-bagger -- quadrupling the total returns of the S&P 500 (SNPINDEX: ^GSPC). Better yet, for passive income seekers, the company increased its dividend payments for 21 consecutive years along the way.

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Despite these two-and-a-half decades of success, the best may still be ahead for Waste Management.

Waste Management's wide moat

Waste Management accounts for nearly 20% of the combined U.S. and Canadian waste and recycling industry. The company owns and operates 262 landfills, 506 solid and medical waste transfer stations, and 105 recycling facilities.

Similar to Copart's junkyards, Waste Management benefits from citizens' reluctance to add new landfills near their cities. Since the company already operates the largest waste collection network across North America, it will be challenging for competitors to disrupt Waste Management's operations.

Regulatory barriers add another layer of protection around the company's operations by limiting the number of upstarts vying to knock Waste Management from its leadership position. These advantages give the company a wide moat, helping to explain its impressive returns for investors.

Lastly, Waste Management's brand recognition is much higher than its peers. This brand awareness gives the company a competitive edge in key areas, such as expanding its national accounts and increasing self-service e-commerce sales.

Image source: Getty Images.

While the company's leadership position and wide moat are exciting on their own, Waste Management also has two intriguing growth areas.

1. Sustainability

The company invested $1.4 billion to build or automate 39 recycling facilities by 2027. This will expand its capacity in the burgeoning recycling industry.

Meanwhile, Waste Management is also spending $1.6 billion to build 20 renewable natural gas (RNG) facilities by 2027. Capturing the landfill gases (LFG) at its facilities, Waste Management operates LFG-to-electricity plants, and also converts LFG to RNG to help fuel its fleet of collection vehicles.

Management believes these sustainability growth areas will see sales growth of 15% through 2027 and generate $600 million in annual free cash flow (FCF). Waste Management averaged roughly $2 billion in FCF over the last five years, so this growth should boost cash generation.

2. Healthcare solutions

Waste Management acquired medical waste and document disposal leader Stericycle in 2024 for $7.2 billion. Stericycle was the leader of its niche, but it struggled to maximize its profitability and should thrive by joining Waste Management's vast service network.

Management hoped to realize $125 million in synergies, but has boosted this figure to $250 million one year later. With the U.S. medical waste services market expected to grow by 7% annually through 2028, Waste Management is well-positioned to serve hospitals facing an aging population.

The company currently boasts a return on invested capital (ROIC) of 14%, which exceeds the average of its peers at 11%. Exceeding Waste Management's cost of capital at 8%, this ROIC shows the company's promising track record of generating profits from the debt and equity it uses to fund its new growth areas.

Passive income potential

Waste Management currently offers a dividend yield of 1.4%. This yield doesn't really scream "passive income potential." Yet, the company's consistent dividend increases pack quite a punch.

For example, Waste Management has delivered total returns of 2,230% since 2000. Without dividends, this figure drops to 1,220%.

This difference highlights the value of buying and holding blue chip dividend-growth stocks.

As for the safety of Waste Management's dividend, it only uses 46% of the company's net income, leaving ample room for future increases. As the Stericycle acquisition continues to streamline and Waste Management's sustainability business expands, profits should rise, bringing higher dividend payments.

Growing its payments by 10% compared to last year, Waste Management's dividend should offer plenty of passive income potential for investors willing to buy and hold for a decade and beyond.

Trading at 30 times forward earnings, the company isn't cheap. However, Waste Management's resilient business, wide moat, growth options, and passive income potential make it worthy of a premium to a market it has already proven capable of outperforming.

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Josh Kohn-Lindquist has positions in Copart and Waste Management. The Motley Fool has positions in and recommends Copart. The Motley Fool recommends Waste Management. The Motley Fool has a disclosure policy.