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Safe Dividend Stocks for the Next Market Crash: Williams-Sonoma (WSM)

WSM Dividend Yield: 3.1%
5-year Annual Dividend Growth Rate: 17.2%

Williams-Sonoma, Inc. (NYSE:WSM), the famous home furniture brand that also owns Pottery Barn, has admittedly struggled of late over concerns that, Inc.’s (NASDAQ:AMZN) continued domination of online retailing will crush brick-and-mortar sellers.

But WSM is being thrown out with the bathwater. The internet is no weakness, and in fact, 51% of Williams-Sonoma’s sales are direct-to-consumer online sales.

The company appears to be successfully competing with Amazon and has managed to do so while also growing its profitability.

For example, over the past five years, sales are up 7.3% annually, EPS are up 13% and FCF per share is up 6.6%. Meanwhile, return on invested capital has grown from 16% to 26% thanks to the company’s strong brand, pricing power, and increasingly efficient supply chain.

And as for its online business, the EBIT margins on that are 22% compared to 10% for its in-store sales, meaning that as Williams-Sonoma continues to transition to more online sales, its margins should continue to improve even more. That’s because physical stores represent high fixed costs, and if Williams-Sonoma can sell more while opening fewer stores, its margins will continue to rise.

Of course, the company’s growth runway isn’t just tied to U.S. retail. Growth is made up from a mix of factors, including rising market share, continued strong growth of direct-to-consumer online sales and international expansion, including successful tests in Australia and Mexico.

WSM already deserves a look among other dividend stocks, and investors can expect 9% to 10% long-term payout growth from the company. That’s especially true given the company’s 2016 EPS and FCF/share payout ratios were a low and highly secure 41% and 37%, respectively.

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