My objective as an investor is to purchase stocks with a reputation of rewarding their shareholders with dividend increases and prudent share repurchases, all backed by steady operating fundamentals.
One business that fits this description is the omnichannel (a multipronged approach to sales including mobile, desktop, and brick-and-mortar) specialty retailer Williams-Sonoma (NYSE:WSM).
Let’s dig into how Williams-Sonoma’s record second-quarter operating results and impeccable balance sheet made its substantial dividend raise and new share repurchase program possible, and whether the stock is worthy of attention from dividend investors at the current valuation.
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A flawless balance sheet
In addition to its impressive operating results, Williams-Sonoma is one of the few publicly traded businesses to boast a balance sheet free of long-term debt as of Q2 2021.
If the company’s absence of long-term debt on its balance sheet weren’t enough, the company also maintained a huge cash position.
Williams-Sonoma’s $655 million in cash works out to nearly 5% of its market cap, which should allow the company free reign with regard to executing share repurchases and delivering healthy dividend increases in the years ahead.
A high-quality, reasonably valued business
Williams-Sonoma’s current price-to-free cash flow of 10.5 is well below its 13-year median price-to-FCF ratio of 15.2.
The company’s tremendous second-quarter earnings beat directly contradicts the narrative that the company can’t continue to deliver meaningful growth as COVID restrictions ease, and life reverts more to the pre-COVID “normal.”
Williams-Sonoma’s fundamentals and valuation both suggest that the stock could be worth consideration from dividend growth investors. The company’s well-covered 1.6% yield (versus the S&P 500’s 1.3%) offers the prospect of high-single-digit to low-double-digit annual dividend growth for the foreseeable future.
This article represents the opinion of the writer, who may disagree with the official recommendation position of a Motley Fool premium advisory service. Were motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.