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3 Things Williams Companies' CEO Wants You to Know About What’s Coming Down the Pipeline

By Matthew DiLallo – Aug 9, 2018 at 2:19PM

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The natural gas pipeline giant is heading into a period of fast-paced growth.

Williams Companies (WMB -0.95%) recently delivered somewhat lackluster second-quarter results as its growth engine stalled out. However, while that quarter was bland, CEO Alan Armstrong made it clear on the accompanying conference call that the company is about to enter an exciting new phase, which makes him optimistic that it can make lots of money for shareholders in the coming years.

Here are three of the points he wanted to stress:

1. We delivered a predictable but exciting quarter

Armstrong started the call by saying: "This was another very predictable quarter for us from a financial metric perspective. It was just slightly above our internal plan for the quarter that was used to forecast our guidance that we provided."

Overall, earnings at both Williams and its MLP Williams Partners (NYSE: WPZ) were down slightly versus the year-ago period due to asset sales, while cash flow modestly increased thanks to lower interest expenses.

Pipelines with a blue sky in the background.

Image source: Getty Images.

"However, the extraordinary thing about the quarter was the tremendous amount of progress on projects, plant expansions, and new business that was contracted during the quarter that gives us even more confidence in our growth rate for years to come," Armstrong added. Two things stood out:

First, the company and its joint venture (JV) partner Crestwood Equity Partners (CEQP -1.10%) approved the expansion of their Jackalope gathering and processing business in the Powder River Basin. The expansion projects will supply Williams with some incremental cash flow as they come on line over the next year, while giving the smaller Crestwood some additional fuel to help grow its earnings at a 15% compound annual rate through 2020. 

Second, Williams formed a new JV with private equity giant KKR (KKR -2.75%) to acquire Discovery DJ Services for $1.173 billion. Williams will initially own 40% of this JV, but will boost its stake up to 50% by investing an incremental $250 million into expanding Discovery's asset footprint over the next few years.

Meanwhile, Williams also announced that it's selling its Four Corners Area for $1.125 billion in cash in a high-value trade that will pay for the Discovery transaction as well as provide funding for higher-returning expansion projects within that JV and elsewhere.

2. We're about to hit the accelerator

While Williams' growth engine ran out of gas in the second quarter, Armstrong stated that "we are obviously looking forward to more dramatic growth in the second half of the year as the Atlantic Sunrise project nears completion, and producer activity on our systems in the Northeast and in Wyoming continues to ramp up."

These factors are expected to help drive 9% cash flow growth this year, and another 13% increase for 2019. Further, Armstrong pointed out that the company has improved its financial position and growth prospects with the moves it recently announced. He stated that "selling assets in a very mature basin and at attractive multiples, and then redeploying that capital to higher-growth basins, allows us to capitalize on future growth opportunities without stretching the balance sheet or issuing equity."

A stack of pipelines with a blue sky in the background.

Image source: Getty Images.

3. We think we are an attractive investment opportunity

In addition to the company's organic expansion projects and recently announced transactions, the other major strategic item in the hopper is its pending acquisition of Williams Partners. That deal will strengthen Williams' financial profile and growth prospects, making it a compelling investment opportunity. Armstrong laid out why he believes this on the conference call:

Williams is certainly a unique investment among the S&P 500 companies. The post-merger entity will provide a large-scale entity focused on natural gas with significant growth opportunities, low volatility, and highly predictable fee-for-service cash flows. After the WMB/WPZ merger closes, we'll have a much more simplified structure ... and impressive market capitalization. Our attractive dividend yield and growth, along with our strong focus on improving our [return on capital employed], will deliver significant advantages for shareholders. Williams fares extremely well when compared to other S&P 500 companies in dividend yield, adjusted EPS, adjusted EBITDA growth, and dividend growth. In fact, Williams is so unique that you'd be hard-pressed to find another S&P company where consensus estimates meet or exceed Williams' outlook for these key measures.

What makes Williams stand out is that it's one of the few companies in the S&P 500 offering a high-yield dividend and a high growth rate. Here's how it stacks up versus the average stock in the S&P 500:


Williams Companies

Median S&P 500

Dividend yield



EBITDA growth rate (2018-19)



Dividend growth rate (2018-19)



Data source: Williams Companies investor presentation.

That combination of a more generous income stream and a higher-octane growth rate creates the potential for Williams Companies to deliver market-beating total returns over the next couple of years.

More-exciting days are ahead

While Williams Companies' second-quarter results were a bit of a yawner, the company is on the cusp of much more exciting growth. It has a major expansion project coming on line in Atlantic Sunrise that will accelerate cash flow in the back half of this year, and it added more fuel to its growth engine during the quarter. Add those catalysts to the upcoming completion of its merger with Williams Partners, and Williams Companies has become a very compelling dividend stock to consider buying.

Matthew DiLallo owns shares of Crestwood Equity Partners LP. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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