Williams Companies (WMB -1.97%) recently increased its dividend by 3.7%, pushing the yield to around 5%. That continued the steady growth in the payment since the natural gas pipeline company reset its dividend expectations in 2016.
There's more dividend growth ahead. That's clear from the company's first-quarter results and growing pipeline of expansion projects. And that makes Williams an enticing option for investors seeking a steadily rising passive income stream.
Another quarter of steady growth
Williams Companies generated $1.511 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) during the first quarter. That's $96 million, or 7%, above the first quarter of 2021. It marked the continuation of Williams' steady growth over the past five years, with its adjusted EBITDA rising at a 6% compound annual rate during that timeframe.
Meanwhile, cash flow expanded at an even stronger pace. Available funds from operations (AFFO) surged by $161 million to $1.19 billion, a 16% year-over-year increase. That was enough money to cover Williams' growing dividend by a comfortable 2.3 times. This metric has improved from 2.07 in the year-ago period because cash flow has risen faster than the dividend payment.
That's enabling the company to retain more cash to fund capital investments and strengthen its balance sheet. The pipeline giant invested $316 million into expansion projects in the quarter, 14% above the year-ago level. Meanwhile, its leverage ratio has improved from 4.2 times debt-to-adjusted EBITDA to 3.81. These financial metrics put the natural gas infrastructure company's dividend on an even more sustainable foundation.
The fuel to keep growing
Williams' strong start to 2022 has the company expecting to deliver even better results this year. The company has increased the midpoint of its adjusted EBITDA guidance range by $250 million to $6.05 billion for the year. That would put earnings up 7% from 2021's total.
Meanwhile, it should have plenty of fuel to continue growing in the coming years. Williams Companies recently secured enough customer agreements to move forward with several new projects, including:
- The Louisiana Energy Pathway Project, to expand its Transco pipeline to serve the growing liquefied natural gas (LNG) export market.
- The Salamanca tieback project in the Gulf of Mexico. It's the seventh tieback in the region over the past two years.
- Two new gathering expansions for producers in the Utica and Marcellus shale regions.
The company now has six natural gas transmission projects in its backlog, representing $1.5 billion of investment through 2025. That's on top of its growing list of tieback projects in the Gulf of Mexico and continued expansions of its gathering and processing assets.
Williams also agreed to acquire Trace Midstream for $950 million. The deal expands its footprint into the East Texas region of the Haynesville Shale, increasing its scale. Meanwhile, the additional volumes from Trace will help support Williams' Louisiana Energy project.
The company has several other new natural gas infrastructure projects in development. Overall, it's pursuing two dozen expansions of its large-scale natural gas transmission pipelines, representing $8 billion of future investments in the 2023 to 2031 timeframe.
The company is also investing capital into a growing number of new energy venture opportunities. Projects include solar energy, renewable natural gas, hydrogen, carbon capture and storage, batteries and energy storage, and next-generation natural gas. It's evaluating several opportunities across those themes with plans to invest about $100 million this year and up to $250 million annually.
These investments should enable Williams to continue expanding its earnings and cash flow in the coming years. Given its strong financial profile, the company has ample financial flexibility to fund these investments while continuing to grow its dividend. It also has the balance sheet strength to pursue additional acquisitions as compelling opportunities like Trace Midstream arise.
A rock-solid passive income producer
Williams Companies continues to steadily grow its cash flow. That's giving it the fuel to increase its dividend while investing in more expansion projects. Thanks to the improving market conditions this year, the company has seen an uptick in expansion opportunities, which will provide the fuel to keep growing in the future. Meanwhile, it's pursuing a growing list of emerging energy opportunities as the industry shifts toward cleaner fuel sources. That means Williams continues to look like an excellent option for investors seeking a sustainable passive income stream.