Williams Companies (WMB +0.77%) has been a very reliable income investment over the decades. The natural gas pipeline giant has paid dividends for 50 years. While the company hasn't increased its dividend payment every single year, it has grown its payout at a 6% compound annual rate over the past five years.
The pipeline stock is providing its investors with another raise this year. It's increasing its dividend by 5.3%. That raise has pushed its dividend yield up to more than 3.6%, about triple the S&P 500's dividend yield (1.2%). Here's a look at what's driving its ability to send investors more cash and whether it has the fuel to continue increasing its payout.
NYSE: WMB
Key Data Points
Built on a rock-solid foundation
Williams is a cash-producing machine. The natural gas pipeline company was on track to produce $5.2 billion to $5.4 billion ($4.29 to $4.41 per share) of available funds from operations (FFO) last year. That would have been enough cash to cover its prior dividend level by a comfy 2.3 times, even after giving its investors a 6.1% raise last year. That low dividend payout ratio enabled Williams to retain more than enough money to cover its capital spending ($1.5 billion to $1.8 billion for growth capital projects and $1.1 billion to $1.3 billion for maintenance expenses).
The company was on track to end last year with a 3.8 times leverage ratio, supporting its strong investment-grade credit rating. That's a 25% improvement from 2018, as the company has steadily strengthened its balance sheet by growing its earnings and retaining additional cash for debt reduction.
Heading into last year, Williams had grown its available FFO per share at an 8% compound annual rate. It has benefited from a combination of organic expansion projects and acquisitions. It has invested heavily in expanding its Transco gas pipeline system, Gulf of America operations, and gathering and processing capacity. Williams has also made several acquisitions to enhance its strategic position in several key areas.
Plenty of gas in the tank
Williams has a lot of growth coming down the pipeline. It expects to place six Transco projects into service during the second half of last year through 2025. It also anticipates completing five major Gulf of America projects this year. These projects position the company to grow its earnings this year and into 2026.
The company has several more organic expansion projects underway that will help boost its earnings in 2027 and beyond. For example, it's building the Southeast Supply Enhancement project. The nearly $1.5 billion Transco capacity expansion project should enter service by the end of 2027. It also recently approved the Transco Dalton Lateral Expansion II project, which it expects to complete by the end of 2029. These projects provide the company with a clear line of sight to grow its earnings and cash flow through the end of the decade.
Williams has many more expansion projects in development. It's currently pursuing about 30 projects across its natural gas transmission pipelines. These opportunities represent more than $10 billion of future investment potential with in-service dates from 2026 through 2032.
In addition to organic growth, Williams has the financial flexibility to continue making accretive acquisitions as opportunities arise. Last year, the company spent nearly $2 billion to buy a major natural gas storage portfolio along the Gulf Coast. In 2023, it bought the MountainWest gas transmission and storage business for $1.5 billion. Acquisitions add incremental income and expansion opportunities.
A very bankable dividend
Williams has been a reliable dividend stock over the years, which should continue. The natural gas pipeline giant has a rock-solid financial foundation, giving it plenty of fuel to grow its dividend while also investing heavily to expand its operations. With lots more growth coming down the pipeline, Williams should be able to continue increasing its dividend for the foreseeable future.
