Williams Companies (NYSE:WMB) Has Announced A Dividend Of US$0.41

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. The dividend yield will be 6.6% based on this payment which is still above the industry average.

See our latest analysis for Williams Companies

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. Prior to this announcement, the company was paying out 171% of what it was earning and 90% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 28.1%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 125%, which probably can't continue putting some pressure on the balance sheet.

Williams Companies Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2011, the dividend has gone from US$0.50 to US$1.64. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Williams Companies' Dividend Might Lack Growth

Investors could be attracted to the stock based on the quality of its payment history. Williams Companies has seen EPS rising for the last five years, at 17% per annum. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Williams Companies that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list 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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