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.
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