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.
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.
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.