Williams Companies (WMB +0.93%) offers investors a big-time income stream. The natural gas pipeline giant's dividend currently yields 5.4%. That's over three times the S&P 500's 1.6% dividend yield. This payout rate implies that every $1,000 invested in the company can produce $54 of annual passive income.
That annual passive income stream will likely rise in the coming years. Fueling that growth is the continued expansion of the company's pipeline system. Williams recently moved forward with another new expansion project, adding another future fuel source for the payout.
NYSE: WMB
Key Data Points
Adding more fuel to grow the dividend
Williams Companies has steadily grown its dividend in recent years. Since 2018, the natural gas pipeline giant has increased it at a roughly 6% compound annual rate -- including giving its investors a 3.7% raise earlier this year -- by investing in $8 billion of high-return expansion projects. Meanwhile, that payout has grown more sustainable during that time frame. Williams Companies' leverage ratio has declined by 21%, while it's generating enough cash flow to cover its dividend by more than two times. That's giving it even more financial flexibility to invest in projects that expand its pipeline network, providing it with more fuel to keep growing its payout in the future.
Williams recently approved its latest expansion project. The company will move forward with construction on the Louisiana Energy Gateway (LEG) Project. LEG will gather 1.8 billion cubic feet of natural gas per day from the Haynesville basin of Louisiana and deliver it to various markets, including its large-scale Transco pipeline, industrial markets, and growing LNG export demand along the Gulf Coast. The company expects this project to go into service and start generating cash flow by late 2024.
One unique aspect of LEG is that Williams intends to develop carbon capture and storage infrastructure to decarbonize the natural gas flowing through its pipelines. The company has recently partnered with several technology companies who provide solutions to help verify emissions data, which will help ensure that the gas flowing through LEG has a lower carbon footprint, making it more sustainable.
A growing pipeline of incremental income streams
The LEG project adds to Williams' backlog of high-return expansion projects. The pipeline company has four growth drivers that should supply it with steadily rising income in the coming years:
- Transmission growth projects: Williams is investing $1.5 billion into six natural gas transmission expansion projects that should enter service through 2025. The company has more than 30 additional transmission projects in development representing $7 billion of investment potential through 2031.
- Deepwater Gulf of Mexico expansion projects: The company has six high-return capital projects underway to connect new offshore developments to its existing infrastructure. These projects should double its earnings from the region by 2025 with minimal capital investment required.
- Northeast gathering and processing (G&P) growth: Williams has four expansions underway to capture future production growth in the region.
- Haynesville and Wamsutter G&P growth: Recent partnerships should drive new expansion opportunities like the LEG project.
Williams is also starting to expand beyond fossil fuels to drive future growth. The company formed a new energy ventures unit to pursue lower-carbon investment opportunities. It's investing $100 million in projects this year and sees the potential to invest up to $250 million annually. One area that's seeing some of that capital investment is solar energy. Williams has 10 solar projects that it expects to complete next year and another five in early development stages. The company also joined forces with European clean-energy giant Orsted to explore wind energy, hydrogen, and other cleaner-energy opportunities.
Williams' growing backlog of secured capital projects should supply the company with a steadily rising cash flow stream for the next few years. Meanwhile, its development pipeline across natural gas infrastructure and emerging cleaner-energy solutions could help fuel growth over the long term if it moves forward with those projects. That should allow the company to continue increasing its dividend payment for years to come.
A growing pipeline of passive income
Williams Companies pays an attractive dividend that it has steadily increased over the past few years. That income stream should continue rising in the future, fueled by the company's growing pipeline of expansion projects like LEG. Because of that, Williams is a great option for those looking to collect passive income.
