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The board of The Williams Companies, Inc. (NYSE:WMB) has announced that it will pay a dividend of US$0.41 per share on the 27th of September. Based on this payment, the dividend yield on the company's stock will be 6.5%, which is an attractive boost to shareholder returns.
Williams Companies Doesn't Earn Enough To Cover Its Payments
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, the company's dividend was higher than its profits, and made up 90% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.
Over the next year, EPS is forecast to expand by 28.6%. If the dividend continues on its recent course, the payout ratio in 12 months could be 124%, which is a bit high and could start applying pressure to the balance sheet.
Williams Companies Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was US$0.50 in 2011, and the most recent fiscal year payment was US$1.64. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Williams Companies' Dividend Might Lack Growth
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see Williams Companies has been growing its earnings per share at 17% a year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.
Our Thoughts On Williams Companies' Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Williams Companies' payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Williams Companies that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
This article by Simply Wall St is general in nature. 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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