Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Williams-Sonoma, Inc. (NYSE: WSM) is set to be ex-dividend in just 4 days. The ex-dividend date is generally set at one working day before the registration date which is the deadline by which you must be present in the books of the company as a shareholder to receive the dividend. The ex-dividend date is important because the settlement process involves two full business days. So if you miss this date, you would not appear on the company’s books on the date of registration. So you can buy Williams-Sonoma shares before October 21 in order to receive the dividend that the company will pay on November 26.
The company’s next dividend payment will be US $ 0.71 per share. Last year, in total, the company distributed US $ 2.84 to shareholders. Looking at the last 12 months of distributions, Williams-Sonoma has a sliding return of around 1.6% on its current price of $ 182.26. Dividends are an important source of income for many shareholders, but the health of the business is critical to sustaining those dividends. That is why we should always check whether dividend payments seem sustainable and whether the business is growing.
Dividends are generally paid out of company profits. If a company pays more dividends than it made a profit, the dividend could be unsustainable. Williams-Sonoma only pays out 17% of its after-tax profit, which is comfortably low and leaves plenty of leeway in the event of unwanted events. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. The good news is that she only paid 12% of her free cash flow last year.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.
NYSE: Historic WSM Dividend October 16, 2021
Have profits and dividends increased?
Companies with consistently rising earnings per share usually make the best dividend-paying stocks because they generally find it easier to raise dividends per share. If profits fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. It is encouraging to see that Williams-Sonoma has grown its profits rapidly, rising 31% per year over the past five years. With rapidly growing earnings per share and the company wisely reinvesting nearly all of its earnings back into the business, Williams-Sonoma looks like a promising growth company.
Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Williams-Sonoma has generated dividend growth of 17% per year on average over the past 10 years. It is exciting to see that earnings and dividends per share have grown rapidly over the past few years.
The bottom line
Does Williams-Sonoma have what it takes to maintain its dividend payments? We like the fact that Williams-Sonoma is increasing its earnings per share while simultaneously paying a small percentage of its earnings and cash flow. These characteristics suggest that the company is reinvesting in growing its business, while the prudent payout ratio also implies a reduced risk of dividend reduction in the future. Overall, we think this is an attractive combination worthy of further research.
In light of this, while Williams-Sonoma has an attractive dividend, it’s worth knowing the risks of this stock. To help you, we have discovered 1 warning sign for Williams-Sonoma which you should know before investing in their stocks.
However, we don’t recommend simply buying the first dividend stock you see. here is a list of attractive dividend-paying stocks with a yield above 2% and a future dividend.
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