After a summer of relentless bullish momentum and new all-time highs, it took just a few days to remind investors, once again, that the stock market can also go down.

Whether your risk tolerance is high or low, it's worth being aware of those few companies that are positioned to thrive even during recessions. More often than not, these will be industry leaders that are able to generate predictable income streams in good times and bad. Waste Management, the largest waste collection and transportation company in the U.S., is one of the best at this.

Here's why it's worth watching and potentially adding to your portfolio if you're worried about a recession.

A bear with a red stock chart in the background indicates a declining stock market.

Image Source: Getty Images.

Track record to prove it

In its 2020 investor presentation, Waste Management claimed that its "resilient business model, and strong balance sheet, position [it] well in a challenging environment." Judging by the stock's performance over the past 20 years, there's evidence to back up that claim.

Asset

2000-2019 Total Return

2018 Total Return

2015 Total Return

2011 Total Return

2008 Total Return

2005 Total Return

2002 Total Return

2001 Total Return

2000 Total Return

Waste Management (NYSE:WM)

978.8%

5.3%

7.1%

(7.7%)

4.8%

4.2%

(28.1%)

15.0%

61.5%

S&P 500

218.8%

(4.6%)

1.2%

1.9%

(36.8%)

4.8%

(21.6%)

(11.8%)

(9.7%)

Industrial Select Sector SPDR ETF (NYSEMKT:XLI)

303.5%

(13.2%)

(4.3%)

1.1%

(38.7%)

2.8%

(24.6%)

(10.2%)

7.9%

Data Source: YCharts. Table By Author. 

Waste Management has generally outperformed the market in years when the S&P 500 has produced a below-average total return of less than 5%. Most notable is Waste Management's better than 4% return amid the depths of the Great Recession in 2008, a striking illustration of its ability to thrive in economically weaker periods. Overall, the stock has risen nearly 10-fold over the past 20 years, more than four times the total return of the S&P 500.

A pretty good second quarter

That ability to outperform the market, and especially other industrial stocks, during rough years arises from its resilient business model. Consider 2020's second quarter for example.

In a year-over-year comparison between what was one of the most challenging quarters in recent memory and a strong Q2 2019, Waste Management's revenue declined by 9.9%, adjusted net income fell by 20.1%, and free cash flow (FCF) dropped by just 3.7%. It's also encouraging to see Waste Management issue guidance that 2020's total revenue should be down by just 4% to 5% compared to 2019. The company also expects to generate more than $2 billion in FCF, which is more than double the $920 million it is set to pay to shareholders in dividends. 

Digging into the details

Waste Management's collection services contributed more half of its 2019 revenue, the other sources being transfer (10%), landfill (21%), recycling (5%), and other (9%). 

That collection revenue comes from a wide variety of sources, which helps ensure that declines in certain sectors of the economy don't crash this revenue stream. This is illustrated by the breakdown of Waste Management's collection revenue during Q2, when commercial collection revenue fell by 11.8%, residential collection revenue actually increased, and industrial collection revenue fell by 16%. In sum, Waste Management just proved again that its business can handle widespread slowdowns in the economy.

A reliable investment

Waste Management's leading position in an essential industry makes it a worthwhile investment to hold during a recession. The company's track record proves that it really can thrive regardless of the broader economic situation, and management has increased its dividend annually for more than 15 consecutive years, which gives shareholders a reliable source of income no matter how stock prices move in the short term.