3 Defensive Dividend Stocks for Steady Passive Income

Dividend investing is a popular all-weather strategy on Wall Street, though it's important not to focus solely on stocks with the highest yield. For an investment income strategy that generates long-term wealth, it's best to target dividend stocks that have a proven track record of operational resilience and sustainable dividend growth over the long haul.

With this in mind, here's a spotlight on three quality companies operating in defensive industries, all of which offer dividend payments backed by at least a decade of consistent growth.

#1. Waste Management Stock

Waste Management Inc. (WM) is a sanitation and environmental services provider provides comprehensive waste management services, from collection and disposal to the development of landfill gas-to-energy sites. Its customers include residential, commercial, industrial, and municipal corporations across Canada and the United States.

Incorporated in 1987 and headquartered in Houston, Texas, WM has a market cap of $85.48 billion.

WM stock has been a steady performer this year, gaining close to 19% YTD. The shares are up 33% over the past 52 weeks.

Waste Management shareholders receive a quarterly dividend of $0.75 per share for a yield of 1.41%, which the company has increased consistently for the past 20 years. With a payout ratio of 41.7%, WM's dividends are well-covered.

The company posted its second-quarter results in late July, with profits of $680 million, or $1.82 per share, arriving in line with analysts' estimates. Revenue of $5.4 billion was also roughly on pace with the consensus forecast. Adjusted EBITDA for the quarter was $1.6 million, up 10.3% YoY, while the adjusted operating EBITDA margin improved 30 basis points from the same quarter last year.

WM ended the quarter with a cash reserve of $172 million. For the full year, management expects adjusted operating EBITDA in the range of $6.375-$6.525 billion, with free cash flow of $2-$2.15 billion.

The sanitation company is set to release its third-quarter results after the closing bell on Oct. 28.

Analysts have a consensus “Moderate Buy” rating on WM, with 10 analysts out of 20 rating the stock a “Strong Buy” or “Buy,” compared to 10 “Holds.” The mean price target of $225.37 indicates an upside potential of 5.7% from Thursday's close.

#2. L3Harris Technologies Stock

L3Harris Technologies Inc. (LHX) is a provider of defense technology products across the sea, land, air, space, and cyber areas. It is involved in the supply of integrated missile systems, communication systems, aviation systems, and space and airborne systems. Serving various critical commercial and government agencies such as the U.S. Navy, Department of Defense, Army, and more, LHX has a market cap of $47.06 billion.

LHX stock is up 17.9% YTD, and 39.3% over the past 52 weeks.

LHX pays a quarterly dividend of $1.16 per share, which translates to a yield of 1.87% at current levels. The payments are backed by more than 20 years of consistent growth, and a conservative payout ratio of 35.8%.

L3Harris reported its second-quarter results on July 25, and its profit of $366 million, or $3.24 per share, rose 9% YoY to beat analysts' $3.18 per share estimate. Revenue during the quarter spiked 13% to $5.3 billion, in line with Wall Street’s forecasts.

The company reported adjusted free cash flow of $714 million for Q2, and management raised its full-year revenue, margin, and earnings guidance. LHX now expects revenue of $21-$21.30 billion, with earnings projected between $12.85 and $13.15 per share.

L3Harris will announce its Q3 results after the close next week on Oct. 24.

Analysts have a consensus “Moderate Buy” rating on LHX, with bullish recommendations from about 57% of the 19 in coverage. The mean price target is $262.95, reflecting an expected upside potential of 5.9%.

#3. Xylem Stock

Xylem Inc. (XYL) is a water technology company involved in the designing and manufacturing of engineered products and solutions. They are involved in the entire water cycle, from the delivery to the treatment of wastewater and its return to the environment. They serve residential, commercial, industrial, and utility infrastructure customers across North America, Europe, and Asia-Pacific, with their headquarters in Washington, D.C.

With a market cap of $33.3 billion, XYL stock has been a steady gainer, up 18.2% so far in 2024, and rising 45.3% over the past 52 weeks.

XYL pays out a quarterly dividend of $0.36 per share, which yields 1.05% annually at current levels. Backed by over a decade of consistent annual increases and a reasonable payout ratio of 34.7%, Xylem is a solid pick for passive income.

Xylem released its second-quarter results in late July, with the profit of $194 million, or $1.09 per share, outpacing Wall Street’s $1.06 per share estimate. Revenue during the quarter surged 27% YoY to $2.17 billion, edging past consensus estimates of $2.16 billion. Adjusted EBITDA reached $452 million during the quarter, while Xylem's adjusted operating margin grew from 15% to 16.2%.

Management upped their 2024 guidance, and now expects revenue of $8.55 billion, with organic growth of 5% to 6%. Full-year EPS is anticipated in a range from $4.18 to $4.28, up from the previous guidance of $4.10 to $4.25.

Xylem is set to release its Q3 results ahead of the open on Oct. 31.

With 18 analysts in coverage, the consensus is a “Moderate Buy” rating. XYL's mean price target of $156.40 indicates an upside potential of 15.7%.

On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.