Income investors seek a steady stream of dividends. Williams-Sonoma’s dividend history is long and it might make a great addition to an income portfolio. Let’s take a look at the business, dividend history, and payout safety going forward.
Business Overview and Highlights
Williams-Sonoma (NYSE: WSM) is a $4.3 billion business based out of San Francisco, CA. The company employs 11,400 people and last year Williams-Sonoma pulled in $5.7 billion in sales which works out to $498,000 per employee.
Williams-Sonoma sells kitchenware and home furnishings. It is one of the largest e-commerce retailers in the country, and one of the biggest multi-channel specialty retailers in the world.
The company’s board of directors declared a quarterly cash dividend of $0.48 per share. The new dividend represents an 11.6% increase from the previous $0.43 quarterly cash dividend. The dividend is payable on May 31, 2019 to shareholders of record on April 26. Also, the board of directors increased the amount available for repurchases under its existing stock repurchase program by $500 million.
Williams-Sonoma’s 10-Year Dividend History
The company paid investors $0.48 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.77. That’s a 269% increase and you can see the annual changes below…
The compound annual growth is 13.9% over 10 years… but over the last year, the dividend climbed 13.5%. The slowdown in dividend growth isn’t a great sign. Although, Williams-Sonoma still might be a good income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Williams-Sonoma’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital and we’ll look at that soon.
The dividend yield comes in at 3.53% and that’s above the 10-year average of 2.73%. The chart below shows the dividend yield over the last 10 years…
The higher yield shows that investors have bid down the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that every $1 Williams-Sonoma earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety… but accountants can manipulate net income. They adjust for goodwill and other non-cash items. Free cash flow is a better metric.
Here’s Williams-Sonoma payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years and the trend is up. In 2013 the company spent $205 million in capital expenditure. That spending decreased the free cash flow and increased the payout ratio. The ratio has steadily declined and last year shows a payout ratio of 36.4%. This gives wiggle room for Williams-Sonoma’s board of directors to raise the dividend.
Are you interested in seeing better value dividend stocks in the current market? If so, check out: Best Dividend Stocks: Top Dividend Achievers List
If you’re a dividend investor, check out this dividend reinvestment calculator. It’s a powerful tool that’s free to use.
Good investing,
Robert
