Yahoo Finance Why Williams-Sonoma Inc (NYSE:WSM) Should Be In Your Portfolio
There is a lot to be liked about Williams-Sonoma Inc (NYSE:WSM) as an income stock, over the past 10 years it has returned an average of 2.0% per year. The company currently pays out a dividend yield of 2.5% to shareholders, making it a relatively attractive dividend stock. Should it have a place in your portfolio? Let’s take a look at Williams-Sonoma in more detail.
View our latest analysis for Williams-Sonoma
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
Is it the top 25% annual dividend yield payer?
Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
Has dividend per share risen in the past couple of years?
Does earnings amply cover its dividend payments?
Will it be able to continue to payout at the current rate in the future?
How well does Williams-Sonoma fit our criteria?
The company currently pays out 52.0% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 38.2%, leading to a dividend yield of 2.6%. However, EPS should increase to $4.27, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. WSM has increased its DPS from $0.48 to $1.72 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Compared to its peers, Williams-Sonoma produces a yield of 2.5%, which is high for Specialty Retail stocks but still below the market’s top dividend payers.
Next Steps:
Keeping in mind the dividend characteristics above, Williams-Sonoma is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three important aspects you should look at:
Future Outlook: What are well-informed industry analysts predicting for WSM’s future growth? Take a look at our free research report of analyst consensus for WSM’s outlook.
Valuation: What is WSM worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether WSM is currently mispriced by the market.
Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
