Quality dividend growth stocks are tied to companies that deliver the goods and services that the world demands. And it's because their goods and services are in such demand that can generate the free cash flow that fuels growing dividends and share prices to shareholders. It's for these reasons that the home retailer Williams-Sonoma (WSM -1.91%) is a core holding within my dividend growth portfolio.

On March 16, management announced that the retailer would be boosting its quarterly dividend by 9.9% to $0.78 per share. And if that wasn't impressive enough, management also announced a new $1.5 billion share-repurchase program. Such an ambitious goal of returning capital to shareholders raises the question: Should you buy the stock?

Let's dive into Williams-Sonoma's fundamentals and valuation to try and get an answer.

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A track record of consistently exceeding expectations

Williams-Sonoma announced a record $2.5 billion in net revenue for the fourth quarter (ended Jan. 30), which represents a 9.1% growth over net revenue in the year-ago period. This narrowly missed the analyst consensus of $2.58 billion in net revenue for the quarter. But this was arguably the result of trouncing expectations for so long that analysts set the bar a bit too high. After all, Williams-Sonoma topped the net revenue analyst consensus in the 12 quarters leading up to Q4. 

Williams-Sonoma's net revenue growth in Q4 was the result of 10.8% comparable brand revenue growth. This growth was led by 18.3% growth in the West Elm brand and 16.2% growth in Pottery Barn, as well as 4.5% growth in the eponymous Williams-Sonoma brand. 

The company's cross-brand loyalty program called The Key and the recently launched cross-brand credit card led to a record-high 60% of sales derived from cross-brand customers in the fiscal year 2021. Cross-brand customers are critical to Williams-Sonoma because they generate three to four times more revenue than the single brand customer, according to Chief Executive Officer Laura Alber's opening remarks in the company's recent earnings call

Williams-Sonoma also reported a record $5.42 in non-GAAP (adjusted) diluted earnings per share (EPS) in Q4, which is equivalent to a 37.2% year-over-year growth rate. How did the company manage to obliterate the analyst consensus of $4.82 for Q4 and extend its earnings-beat streak to nine straight quarters? 

Aside from the higher net revenue base, two factors were in play. First, operational efficiencies led Williams-Sonoma's non-GAAP operating margin to expand 310 basis points year over year to 21% in Q4. And thanks to Williams-Sonoma's share-buyback program, the stock's outstanding diluted share count fell 5.5% against the year-ago period to 74.5 million. 

The balance sheet is a fortress

On top of Williams-Sonoma's strong operating fundamentals, the company also possesses a cash-rich balance sheet. Williams-Sonoma had no long-term debt and $850 million in cash and cash equivalents as of Jan. 30. This can be used to fund Williams-Sonoma's $1.5 billion share-repurchase program. It also works out to 13.6% of its current $11.1 billion market capitalization

A dividend with room to keep growing

Williams-Sonoma's dividend payout ratio was just 16.3% in 2021. Even if a recessionary period results in reduced profitability, the stock's sustainable dividend payout ratio and massive stockpile of liquidity give it the flexibility to continue growing its dividend.

Williams-Sonoma's low dividend obligation to shareholders also should allow the stock to plow capital back into the business and execute bolt-on acquisitions to drive net revenue and earnings higher. Overall, this is why I expect many more annual high single-digit to low double-digit dividend raises in the future.

When paired with Williams-Sonoma's current 2% dividend yield, this is an appealing combo of immediate income and growth prospects. 

The stock is a bargain

You wouldn't expect a stock with Williams-Sonoma's robust fundamentals to be cheaply priced, but that appears to be the case.

The omnichannel retailer is trading at a forward price-to-earnings (P/E) ratio of 10.1, which is well below the S&P 500's 18.9 forward P/E ratio. Furthermore, Williams-Sonoma's trailing-12-month price-to-free cash flow ratio of 10.3 is significantly lower than its 10-year median of 15.1. This makes the stock an attractive e-commerce buy