D.R. Horton, Inc. (DHI), Lennar Corporation (LEN): Two Solid Dividend Stocks to Buy for a Housing Recovery

Secondly, a stronger housing market will boost Waste Management, Inc. (NYSE:WM)’s core solid waste collection business. Expanding neighborhoods will create new collection routes for the company, and more households will generate more household waste, but perhaps most important will be the effect on municipal budgets. Waste Management’s profit margin has been squeezed in the aftermath of the recession as municipalities, reeling from the loss of tax revenue, have forced down the pricing on new solid waste contracts. Higher home prices will lead to higher property taxes, which in most municipalities is the leading source of revenue for local infrastructure spending including trash collection and recycling. When local governments are taking in more revenue, Waste Management will be better able to push pricing increases on to its customers.

Waste Management, Inc. (NYSE:WM)’s stock yields a dividend of about 3.5%, and the company has raised the dividend steadily right through the worst of the recession years. Waste Management has a relatively high payout ratio, with dividend payments taking up about 80% of earnings per share, but the essential nature of the waste business gives the company very consistent and visible income that it calls “annuity-like revenue.” The stock is richly valued at the moment, selling for around 23 times earnings, but the reliability of its earnings and dividend make Waste Management a very low-risk way to play the housing recovery and generate good dividend income.

The article 2 Solid Dividend Stocks to Buy for a Housing Recovery originally appeared on Fool.com and is written by Daniel Ferry.

Fool contributor Daniel Ferry owns shares of Waste Management and Caterpillar. The Motley Fool recommends Waste Management. The Motley Fool owns shares of Waste Management.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.