Williams Companies: Is It Time To Jump In Or Hold Off For A Better Opportunity?

| About: Williams Companies (WMB)

In the learning to fish series, investors are provided with suggested guidelines for choosing a potential candidate and one candidate is selected as our play of choice. We provide reasons for this choice and in doing so hope to impart some understanding to those who are new to the field of dividend investing. The suggested guidelines can be accessed here "Our suggested guidelines when searching for new investment ideas." These are not absolute rules; they are just suggestions and there are always exceptions to the rule. The goal is to try to satisfy as many of them as possible.

Reasons to be bullish on Williams Companies (NYSE:WMB):

  • A decent yield of 4.2%
  • Year over year projected growth rates of 22% and 10% for 2012 and 2013 respectively.
  • A good interest coverage ratio of 4.26
  • A free cash flow yield of 2.77%
  • Net income has increased from $285 million in 2009 to $376 million in 2011
  • Sales increased from $5.2 billion in 2009 to $7.9 billion in 2011
  • A good quarterly earning's growth rate of 31.6%
  • Cash flow per share has increased from $3.54 in 2009 to $4.07 in 2011
  • Strong institutional support; percentage held by institutions is 80.9%
  • A healthy quarterly revenue growth rate of 13.8%
  • Annual EPS before NRI has increased from $0.94 in 2009 to $1.23 in 2011
  • It has consecutively increased its dividends for eight years in a row
  • A decent current and quick ratio of 1.4 and 1.10 respectively
  • A strong five year dividend growth rate of 15.5%
  • $100K invested for 10 years would have grown to $1.1 million. If the dividends were reinvested the rate of return would be even higher
  • Its midstream assets are less susceptible to commodity prices and thus help the company maintain a steady stream of income and cash flow even if natural-gas prices remain depressed
  • It is well poised to benefit from the increased demand in natural-gas liquids due to a rebound in industrial activity
  • It has combined its pipeline, and processing unites to create one of the largest natural-gas partnerships in the U.S.
  • It raised its quarterly dividend in Jan 2012 to $0.258 per share, an increase of almost 100% from the same time period one year ago. This dividend hike illustrates Management's policy of increasing the annual dividend in the 10-15% ranges over the next few years

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The stock is still in a corrective phase and could test the 22.00-24.00 ranges. We would wait for a test of 23 before committing new money to this play. One option would be to sell puts on a test of 23 at strikes you would not mind owning the stock at. Even if you sold the Jan 2013 put at 23, you would still get in at a better price if the shares are assigned to your account in contrast to someone purchasing it for 23. The premium received from the puts will lower your overall entry cost if the shares are assigned to your account.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. EPS and Price Vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com.

Disclaimer: It is imperative that you do your due diligence and then determine if any of the above plays meets with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware