Williams Companies (NYSE:WMB) has been growing at a healthy rate over the past year. The energy company's cash flow rose about 8% during the third quarter and has jumped roughly 16% so far this year. That has given it the funds to cover its 6.8% yielding dividend by a comfortable 1.79 times, even though it has increased it by 11.8% earlier this year.

Unfortunately, Williams Companies doesn't expect the good times to continue rolling in 2020, which was one of the key takeaways on its third-quarter conference call. Here's what headwinds it sees ahead for next year, as well as whether they will affect its ability to keep growing its dividend.

A roll of cash next to a calculator and a sticky note with the word dividends.

Image source: Getty Images.

We see a speed bump in 2020

Williams CEO Alan Armstrong provided investors with a brief glimpse at what the company sees coming down the pipeline next year:

Although we have great confidence in the long-term sustainability of our business strategy, the current low natural gas and NGL [natural gas liquids] prices, which are exceeding the long-term growth of natural gas demand, have had a pretty significant impact on the forecasted near-term growth from our G&P [gathering and processing] business, particularly in the Northeast. And clearly our producer [forecast] cash flow that they have available to drill with has been heavily impacted by much lower strip prices for gas and NGLs. And as a result, our 2020 Northeast gathering volume growth forecast has steadily drifted downward.

Gathering volumes in the Northeast are on track to surge 13% this year, which should drive 19% earnings growth in that segment. However, with gas prices slumping, Williams expects its gathering volumes to rise by only about 3.5% in the Northeast next year, which would result in about 7.5% earnings growth in that segment. That's a reduction in its forecast that volumes would grow by 5.5%, which would support an 11% increase in earnings within its Northeast G&P business next year.

In addition to the slower growth in Northeast G&P, the company also expects weaker results in its west segment, in part because of asset sales and slower growth in its Atlantic-Gulf region, where fewer major projects are entering service. It appears as if the company's earnings growth rate will be below its long-term target range of 5% to 7% per year.

How will this affect the dividend

Given that outlook, there are some concerns about whether Williams will be able to continue increasing its dividend in 2020. Armstrong addressed this point during the call:

And I would just tell you that the free cash flow growth as you can see by the increase in coverage that we've got this year against it, we don't see any change in getting outside of that range, that steady 5% to 7% range that we've talked about for dividend growth because the cash flow growth in a year where the capital spending might be lower is just that much stronger.

In other words, even though the company's earnings might rise by less than 5% next year, that doesn't necessarily mean the company will opt for a slower dividend growth rate. Two factors drive that view. First, Williams is already covering its payout by a healthy amount, which gives it some cushion in a down year. Meanwhile, its spending is likely to decline, meaning it won't need to retain as much cash to fund growth. While Williams hasn't put out an official capital budget for 2020, it expects 2019's spending to be at the low end of its $2.3 billion to $2.5 billion range and hinted that it could be even lower next year. The company thus has ample financial flexibility to deliver on its dividend growth plan in 2020.

A solid income option for long-term investors

Weaker natural gas prices have weighed not only on Williams' growth outlook for 2020 but also on its stock price, which has fallen about 24% from its highs earlier this year. That has pushed its dividend yield up to its current level near 7%. However, with that payout on solid ground, and on track to keep growing, it looks like an even more compelling option for investors who want a lucrative income stream.