- Oops!Something went wrong.Please try again later.
The Williams Companies, Inc. (NYSE:WMB) has announced that it will be increasing its dividend on the 27th of June to US$0.42. The announced payment will take the dividend yield to 4.8%, which is in line with the average for the industry.
Williams Companies Is Paying Out More Than It Is Earning
Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, Williams Companies' profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Earnings per share is forecast to rise by 24.5% over the next year. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 105% over the next year.
Williams Companies Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from US$0.80 in 2012 to the most recent annual payment of US$1.70. This implies that the company grew its distributions at a yearly rate of about 7.8% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
Williams Companies Might Find It Hard To Grow Its Dividend
The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Williams Companies has grown earnings per share at 131% per year over the past five years. EPS has been growing well, but Williams Companies has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
Our Thoughts On Williams Companies' Dividend
Overall, we always like to see the dividend being raised, but we don't think Williams Companies will make a great income stock. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Williams Companies has 2 warning signs (and 1 which is a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.