Building My Dividend Portfolio – Williams Companies, Inc. (WMB)

This is part eight of a ten-part series, which I will be publishing every week until the entire portfolio has been introduced. You can see Part One here, ; Part Two, ; Part Three, ; Part Four, ; Part Five, ; Part Six, ; and Part Seven, .

I have been analyzing dividend companies for close to a year. I am now three-quarters of the way through constructing a model portfolio of my own that I am presenting to the Motley Fool community, one company at a time. Each week, I am digging deeper into individual companies that are at the top of my consideration list.

Williams Companies, Inc. (NYSE:WMB)I review the companies on seven different criteria: yield, number of years paying and raising dividends, 5-year dividend growth rate (DGR), 5-year projected earnings growth rate (EGR), total return for the past twelve months, PE and payout ratio. I feel that this selection covers the past dividend-paying history, the potential future earnings growth, and the valuation of the company.

I constructed a rating system that awards points for each of the previous named criteria. A “perfect” score would be 28 points, with 4 points awarded in all seven categories.

The next company in my portfolio comes from the oil and gas industry, although it is not a Master Limited Partnership (like Enterprise Products Partners L.P. (NYSE:EPD) and Sunoco Logistics Partners). Williams Companies, Inc. (NYSE:WMB) received 18 points on my rating scale.

Williams Companies is an energy infrastructure company, one of the biggest names in the natural gas business, with more than 15,000 miles of gas pipeline and 1,000 miles of NGL pipelines. All in all, Williams moves more than 10% of the entire country’s natural gas capacity, including record levels of natural gas to the Northeast during late January.

Dividend Metrics

In terms of its potential as a dividend-generating stock, I look at the current dividend metrics. Williams’s yield is 3.3%, and it has a 10-year history of consistently paying and raising dividends. The company announced an increase in its first quarter 2013 dividend, payable March 25, an increase of 4% over the previous quarter’s distribution. The company actually raised its dividend four times in 2012, for a total 2012 payout of 54% over the 2011 payout.

The company’s 5-year DGR is an extremely impressive 27.4%. The dividend payout ratio is 105%, which is typical for a pipeline operator.

Future Earnings Metrics

In terms of future earnings growth, the 5-year earnings growth rate (EGR) as estimated by the 14 analysts who cover the company is much higher than its competitors, at 13.6%, as compared to the growth rate for the industry of 7.9% and for the sector of 8.7%. (The S&P 500 5-year EGR is currently 8.6%).

Valuation Metrics

The company has a TTM PE of 32.1, based on today’s price of approximately $36.  The average PE in the Basic Materials sector is 18.3, and in the Oil and Gas Pipelines industry the average PE is 14.9.

Williams is currently trading at about 5% less than its 52-week high of $37.56 and is up 23% from a year ago. Its twelve month total return is 28.3%.

Analyst Opinion

The Motley Fool community rates WMB a four-star CAPS pick, with 523 Bulls and 21 Bears (96% positive sentiment). The 14 professional analysts who cover the company rank it a 1.9 (1.0 = Strong Buy, 5.0 = Sell) with three Strong Buys, nine Buys, and two Holds. They have assigned a one-year average target price of $38.75, which is a potential gain of 8%.

In January, TheStreet.com reiterated its Buy recommendation for Williams, citing improved return on equity over the previous year, strong gross margin performance, and excellent stock price performance over the past twelve months.

Competition

I looked at one of the most popular companies in the Oil and Gas Pipeline industry, Kinder Morgan Energy Partners LP(NYSE:KMP). Naturally, I have examined this one several times in my current quest for the perfect dividend companies, and I have rejected it every time. KMP is currently trading at $88 per share and yields 5.7%. The company has been paying and raising dividends for 16 years, the 5-year DGR is 7.5%, the EGR is 11.8%, and the PE is 38.

The total return over the past twelve months is 8.4%, which is primarily from dividends, as the share price has gained only 3%. Kinder Morgan Partners scores a 15 on my dividend ratings scale.

I also re-examined Enterprise Products Partners L.P. (NYSE:EPD), another pipeline MLP that I added to my Dividend Portfolio in December.  It is currently trading at $56 per share (up from $50.05, where I bought) and yields 4.8%. The company has been paying and raising dividends for 15 years, the 5-year DGR is 7.8%, the EGR is 7.2%, the PE is 19.2 and the payout ratio is 84%. EPD’s total return over the last twelve months is 17%. Based on my original analysis, I am still happy with EPD in my portfolio; it scores an 18 on my ranking system.

Conclusion

Williams Companies has many strengths, including excellent historical dividend growth, an attractive yield, strong analyst support, and terrific growth over the past twelve months. I am less thrilled about its high PE, but I would rather buy into the stock now than wait for a pullback that may not materialize.

It is now the eighth stock in my new dividend portfolio.

I will begin tracking it based on the closing price on the day that this article is syndicated.

The article Building My Dividend Portfolio – Williams Companies originally appeared on Fool.com and is written by Karin Hernandez.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!