The Williams Companies, Inc. (NYSE:WMB) will pay a dividend of $0.475 on the 24th of June. This makes the dividend yield about the same as the industry average at 4.7%.

View our latest analysis for Williams Companies

Williams Companies' Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before this announcement, Williams Companies was paying out 74% of earnings, but a comparatively small 75% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to fall by 3.7%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 78%, which is definitely on the higher side.

Williams Companies Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was $1.47, compared to the most recent full-year payment of $1.90. This means that it has been growing its distributions at 2.6% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Williams Companies has grown earnings per share at 50% per year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Williams Companies is not retaining those earnings to reinvest in growth.

We Really Like Williams Companies' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Williams Companies that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.