Williams Companies (NYSE:WMB) is in the midst of transforming itself into a financially stronger company focused mainly on natural gas pipelines. While this effort has slowed the pipeline giant's growth rate because it sold some non-core assets to pay down debt and fund expansion projects, it recently restarted its growth engine. Because of that, the company should report solidly higher second-quarter results later this week. Here's what to watch in that report.

Keep an eye on the numbers

Williams Companies and its MLP Williams Partners (NYSE:WPZ) got 2018 off to a good start by posting solid numbers in the first quarter. While Williams Partners' earnings were just up fractionally overall because of recent asset sales, profitability in its retained assets expanded 5% thanks to recently completed expansion projects. That kept the company on track to hit its full-year guidance, which would see cash flow expand by about 9% at the midpoint of the range.

A pipeline under construction.

Image source: Getty Images.

Given that forecast, investors should take a look at the company's numbers during the quarter to see if any surprises could derail its ability to achieve its guidance. One area to pay close attention to is the progress on its expansion projects. The company reported earlier in the month that its major Atlantic Sunrise pipeline project remained on track to enter service this summer as long as there were no unexpected weather delays. If that's still the case, Williams should stay on pace to hit its full-year forecast.

See if the Williams Partners merger is still on track

One of the final steps of Williams Companies' transformation into a stronger pipeline company is taking its MLP private in a $10.5 billion all-stock deal. The transaction will simplify its corporate structure, provide the combined company with more retained cash flow with which to finance expansion projects, and enable it to maintain its ability to collect an allowance for income taxes on its pipelines. Williams expects the deal to close in the second half of this year, with a shareholder vote scheduled for August 9.

As noted, one of the drivers of the deal related to taxes, which resulted from the Federal Energy Regulatory Commission (FERC) revising a long-standing policy in March that had allowed MLPs to collect an allowance for income taxes along with their cost-of-service fees on certain pipelines. Because of that change, several MLPs agreed to merge with their parent companies to retain this allowance, including Williams Companies and Williams Partners. However, an interesting wrinkle recently developed when FERC finalized its new policy in mid-July, which gave MLPs several ways to address the policy change. That shift has the potential to affect the merger, which is why investors should see if it's still on track.

A natural gas wellhead after it rained.

Image source: Getty Images.

Look for more expansion project announcements

Williams Partners is currently in the midst of a major expansion phase that should significantly grow earnings and cash flow over the next year and a half. Because of that, Williams believes it can increase its dividend by 10% to 15% next year, after already boosting the payout 13.3% in 2018.

The company has yet to offer a dividend growth forecast beyond next year. One reason is that investment spending is winding down, making future growth less certain. After budgeting to spend $3.1 billion on expansion projects this year, the company currently plans to invest $2.4 billion in 2019, and its spending level could fall further in 2020 unless the company secures new expansions.

Williams does have several projects in development, noting at its analyst day that it had about $5 billion under advanced evaluation that it could sanction in the near term. In fact, the company and its partner, Crestwood Equity Partners (NYSE:CEQP), recently approved an expansion of their Jackalope Gas Gathering System and the associated Bucking Horse gas processing plant. Crestwood and Williams expect to complete this project by the end of next year, and they could continue expanding that system in the future since they anticipate that it will reach full capacity by 2021. Because Williams needs more growth projects like this to give it the fuel to continue increasing its dividend, investors should see if the company sanctioned any more during the quarter. 

Watch it take another step forward in the quarter

Williams Companies is slowly transforming into a financially strong, fast-growing natural gas pipeline company. The hope is that its second-quarter results provide further evidence that this change remains on track. If that's the case, it will increase its appeal as a good dividend stock to own for the long haul.