Williams Companies (NYSE:WMB) stomped on the gas during the second quarter. The company benefited from its strategic investments to expand its gas pipeline network, which fueled higher volumes and earnings across most of its systems. That trend should continue in the coming years as the company keeps expanding its strategically positioned natural gas infrastructure.

Drilling down into the numbers

Metric

Q2 2019

Q2 2018

Change

Adjusted EBITDA

$1.24 billion

$1.11 billion

11.8%

Distributable cash flow

$867 million

$637 million

36.1%

Dividend coverage ratio

1.88 times

1.44 times

30.6%

Data source: Williams Companies.

Williams benefited from strong growth in two of its three operating regions during the second quarter.

Williams Companies earnings by segment in the second quarter of 2019 and 2018.

Data source: Williams Companies. Chart by the author.

Earnings in Williams' Atlantic-Gulf segment soared 23% from last year's second quarter. Fueling that growth was expansion projects on the company's Transco system. The company not only finished its Atlantic Sunrise project last October but also started up Gulf Connector in early January. Those expansions allowed more volumes to flow through that key gas pipeline system.

The other growth driver during the quarter was Williams' Northeast gathering and processing (G&P) business where earnings jumped 25% year over year. Driving that growth was higher volumes at the Susquehanna Supply Hub as well as in the Utica shale region. The gas pipeline giant also benefited from a transaction to increase its stake in the Utica East Ohio Midstream system. That deal was the first phase of a joint venture it formed in that area.

The growth in those two regions more than offset weaker results in Williams' west business unit, where earnings fell by about 9%. Asset sales drove that decline. The company not only sold its Four Corners Area but also its stake in Jackalope. If it weren't for those assets sales, earnings in the west segment would have been roughly flat year over year.

A burst of sunlight shining on a pipeline.

Image source: Getty Images.

A look at what's ahead

Williams Companies delivered those excellent results even though it has continued to actively manage its portfolio. The company has closed two transactions over the past few months, which have brought in more than $1.8 billion in cash. That helped push its leverage ratio down to 4.43 times net debt to adjusted EBITDA by the end of the quarter. As a result, CEO Alan Armstrong noted that "we now see our 2019 leverage coming in better than expected at less than 4.5 times versus our original guidance of less than 4.75 times." That puts the pipeline operator even closer to its long-term leverage target of 4.2 times.

Williams' strong start to the year has it on track to achieve its full-year guidance. The company continues to believe that it will generate between $4.85 billion and $5.15 billion of adjusted EBITDA this year, which would be 12% above 2018's level at the midpoint. Meanwhile, the company sees its distributable cash flow coming in between $2.9 billion and $3.3 billion, which would be about 8% higher than last year. That would provide the pipeline giant with enough money to cover its high-yielding dividend by a comfortable 1.7 times.

The pipeline company also continues to anticipate that it can grow earnings at a 5% to 7% annual pace after this year. Several factors drive that view. First, it expects continued volume growth in its Northeast G&P segment as customers keep drilling more gas wells in that region. In the meantime, it has several expansion projects on its Transco pipeline underway and in development. Finally, it sees opportunities in the Gulf of Mexico to support recent discoveries that are near its assets in the region.

Williams' strategic plan continues to pay dividends

Williams Companies has been reshuffling its portfolio over the past few years so that it has the flexibility to capture needle-moving growth opportunities. Those investments helped fuel big-time growth during the second quarter, which put the company's high-yielding dividend on an even firmer foundation. With more growth up ahead, Williams appears poised to continue increasing its cash flow as well as the dividend. That upside potential makes it such an ideal stock for income-seeking investors to consider buying.