These High-Yield Stocks See Fast-Paced Growth in the Coming Years

Last year was a transitional one for Williams Companies (WMB -0.27%) and its MLP Williams Partners (NYSE: WPZ). The franchise completed a major strategic repositioning to improve its financial situation, which included selling $2.3 billion in assets last year. While those asset sales have slowed Williams Partners' earnings growth rate, they gave the pipeline company the money it needed to invest in higher-return expansions that should fuel faster-paced growth in the coming years.

That outlook was one of the main messages from CEO Alan Armstrong on the fourth-quarter conference call, where he detailed the growth coming down the pipeline, which should result in more cash heading to investors in the coming years.

Williams clearly expects to send more money to investors in the future. Images source: Getty Images.

A closer look at 2018

One of Armstrong's aims on the call was to provide:

Further insight into 2018 where we look forward to a full-year revenue contribution from our Big 5, as well as contributions from our Atlantic Sunrise project, when it is placed online later this year, along with the associated growth in the Northeast gathering volumes upstream of that.

Those expansion projects set Williams Partners up to grow earnings and cash flow this year:

Data source: Williams Partners. YOY = year over year. 

Armstrong noted on the call that "there will likely be some surprise at our adjusted EBITDA range." However, he quickly pointed out that there were some unusual non-cash items driven by changes in the tax law and that "neither of these items impacts actual cash we will receive from customers in 2018." Because of that, distributable cash flow would rise by about 9% this year.

That forecast is driving the company's view that it can increase its current 6.2%-yielding distribution to investors at the midpoint of its 5% to 7% target range, or about 6%, via steady increases each quarter, with the first one coming next month. Meanwhile, that growth will help support an even bigger rise in Williams Companies' 4.1%-yielding dividend, with it expecting to boost the payout 13% this March, which is toward the upper end of its 10% to 15% target range.

Image source: Getty Images.

A glimpse further into the future

Armstrong also stated on the call that the company "want[s] to get in the habit of providing multi-year guidance." That led him to offer a glimpse of what to expect in 2019 and beyond, noting that "we do expect an even stronger level of growth in 2019." That's due to expansion projects under way in the Northeast G&P segment as well as on its Transco pipeline. On Transco, for example, the company expects to capture an additional $320 million in Adjusted EBITDA from expansion projects next year, which is an acceleration from the $250 million boost growth projects should provide this year. As a result, Williams Partners reaffirmed that it could grow its payout another 5% to 7% next year, which should drive a further 10% to 15% increase in Williams Companies' dividend in 2019.

Meanwhile, Armstrong stated that "beyond these near-term growth drivers, our natural gas-focused strategy and competitively positioned assets will likely capture even more growth in 2019 and beyond." He noted that at last year's analyst day, the company was pursuing 20 longer-term projects and that, "since that time, three of these 20 projects have moved out of this bucket and moved from potential to customer committed." Further, the CEO said that "new opportunities continue to emerge. And, in fact, the potential project list has now been backfilled and now stands at over 20 projects."

One area where the company sees "great growth opportunities, especially in 2020 and beyond" is the deepwater Gulf of Mexico. That's because oil giants Royal Dutch Shell (NYSE: RDS-A)(NYSE: RDS-B) and Chevron (NYSE: CVX) recently announced major discoveries near Williams' existing assets. Shell, for example, announced a discovery at its Whale prospect, which Armstrong pointed out was within 15 miles of the company's Perdido oil and gas export pipeline. Meanwhile, Chevron's Ballymore prospect is just three miles from the Blind Faith platform, where Williams' Mountaineer oil pipeline and Canyon Chief gas pipeline serve Chevron's interests in the area. That leads Armstrong to "expect both of these major discoveries to drive significant free cash flows increases in 2020 and beyond." The rising cash flow from those opportunities, and other projects elsewhere, position Williams to continue increasing cash payments to investors well beyond 2019.

Good dividend stocks for the long haul

The central theme of Armstrong's comments on the fourth-quarter call is that cash heading to investors will increase in the coming years. They can expect the payout to rise by the mid-point of Williams' guidance this year, with growth coming within that same range next year. Further, with plenty of projects under way and in development to fuel growth in the coming years, both payouts should continue expanding, making these high-yield stocks solid options for income investors to consider holding for the long term.