Williams (WMB +0.74%) is quietly having a great year. The natural gas pipeline company recently reported strong third-quarter results. That gave it plenty of money to cover its more than 5%-yielding dividend -- which is more than double the S&P 500's dividend yield -- and expand its operations.
Those growth-related investments should give Williams the fuel to continue increasing its dividend. That makes it a solid option for those seeking a growing passive income stream.
NYSE: WMB
Key Data Points
Gas-powered growth
Williams generated $1.637 billion of earnings before interest, taxes, depreciation, and amortization (EBITDA) in the third quarter. That's up 15% year over year. The company also grew its available funds from operations (FFO) by 15%, pushing the total to $1.241 billion. That was enough to cover its high-yielding dividend by a very comfortable 2.4 times, even after accounting for a 4% increase earlier this year.
The natural gas infrastructure company benefited from strong business fundamentals and natural gas demand in the quarter. Thanks to higher gas prices, Williams gathered 17 billion cubic feet per day (Bcf/D) of gas in the quarter, up 11% from last year. Meanwhile, contracted transmission capacity across its pipeline network rose 3% to 24.4 Bcf/d.
As a result of its strong showing in the quarter and outlook for continued strength as we enter the winter heating season, Williams expects to end the year on a high note. It sees its 2022 adjusted EBITDA coming in near the high end of its $6.1 billion to $6.4 billion updated guidance range, which it increased from $5.6 billion-$6 billion earlier this year. Williams also expects available FFO to come in toward the high end of its $4.6 billion to $4.9 billion increased guidance range, putting it further above its initial $4.15 billion to $4.55 billion forecast.
The fuel to continue growing
Williams is benefiting from the increased realization that the world needs secure natural gas supplies following Russia's invasion of Ukraine, which has disrupted supplies to Europe. That's providing the U.S. with more opportunities to export our abundant gas supplies to that continent. As a result, the country will need to build more infrastructure to increase supply and transport it to liquefied natural gas (LNG) export terminals.
Williams CEO Alan Armstrong stated: "Williams is executing a number of high-return growth projects across our portfolio to meet growing long-term natural gas demand domestically and around the world. As we bring this critical infrastructure on line to meet growing demand, we expect to see continued earnings growth and value creation for our shareholders."
The company has projects underway to expand the capacity of its natural gas transmission systems, connect new wells in the Gulf of Mexico to its existing infrastructure, and increase its gathering and processing capacity. These projects should supply incremental earnings and cash flow as they come online over the next several years, giving it more money to support a growing dividend.
Williams is also evaluating various opportunities to extend and enhance its long-term growth prospects. It's working on several more potential natural gas transmission projects to boost capacity. It could invest upwards of $7 billion across 30 projects that could come online in the 2023-2031 timeframe.
Meanwhile, it's also working to advance its clean energy strategy. It's working on a carbon capture and sequestration project to reduce its operations' carbon emissions in the Haynesville shale in Louisiana. In addition, Williams and a partner are working on a clean hydrogen commercialization strategy in Wyoming. These investments could give it the fuel to continue growing for years to come as the economy accelerates its transition to lower-carbon energy sources.
A solid option for dividend income
Williams is having a great year. That's enabling it to produce more cash than expected, giving it the funds to pay its high-yielding dividend, expand its operations, and maintain its solid balance sheet. The company's financial strength and visible growth make it even more likely it will be able to continue increaseing its payout in the future. That makes it an attractive option for those seeking a rock-solid dividend growth stock.
