The Williams Companies, Inc. (NYSE:WMB) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of June to $0.4475. This takes the dividend yield to 6.1%, which shareholders will be pleased with.
Williams Companies' Earnings Easily Cover The Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Williams Companies' was paying out quite a large proportion of earnings and 78% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.
Over the next year, EPS is forecast to fall by 1.4%. If recent patterns in the dividend continue, we could see the payout ratio reaching 84% in the next 12 months, which is on the higher end of the range we would say is sustainable.
Williams Companies Has A Solid Track Record
The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $1.25 in 2013, and the most recent fiscal year payment was $1.79. This means that it has been growing its distributions at 3.7% per annum over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
Williams Companies May Find It Hard To Grow The Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. In the last five years, Williams Companies' earnings per share has shrunk at approximately 2.1% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.
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. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Williams Companies is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Williams Companies that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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