Occidental Petroleum (OXY +1.02%), the oil and gas giant more commonly known as Oxy, has been a major beneficiary of soaring oil prices this year. Oxy generates most of its revenue from its upstream exploration, drilling, and extraction business. When oil prices rise, Oxy and other upstream companies can grow their revenues much faster than their operating expenses.
To support its current capex and dividends, Oxy only needs WTI crude oil -- currently at $93 per barrel -- to remain above its $40-per-barrel breakeven price. Its free cash flow (FCF) also increases significantly as long as WTI stays above $60 per barrel. That's why Oxy's stock has rallied nearly 50% this year and beaten the S&P 500's (^GSPC -0.58%) 12% gain.
Image source: Getty Images.
Oxy might still seem like an attractive investment as the Iran war drags on and oil prices remain high. But as September (historically the worst month for stocks) starts, I'd rather own a steady midstream pipeline stock as my main energy play instead of Oxy's oil-driven shares. That stock is The Williams Companies (WMB +2.27%), which accounts for about 3.2% of my portfolio.
Why are midstream companies more reliable than upstream ones?
Midstream companies build pipelines that transport crude oil, natural gas, and other resources. They charge upstream and downstream companies tolls to use that infrastructure. They're well-insulated from volatile commodity prices, since they only need the oil and gas to keep flowing through their pipelines to generate stable profits and cash flows.
Midstream companies still benefit from rising oil and gas prices, which drive higher volumes through their pipelines. But they struggle less than upstream companies when those prices decline, and they usually return most of their cash to their investors through dividends. That makes midstream stocks a great choice for conservative income investors.
Why is Williams superior to other midstream companies?
Many midstream companies are structured as master limited partnerships (MLPs), which blend a return of capital with their distributions to pay more tax-efficient yields. However, investors who hold shares in MLPs must file separate K-1 forms with their taxes every year. Williams operates as a conventional C corporation, so its dividends are reported on the standard 1099-DIV form.
NYSE: WMB
Key Data Points
Williams pays a forward dividend yield of 2.8%, which is higher than Oxy's 1.9% but significantly lower than the yields of many other midstream companies. However, Williams is also growing faster than many of its industry peers because it's more exposed to the cloud and AI markets.
Unlike many other midstream companies, which deliver a mix of crude oil, natural gas, and other resources, Williams primarily delivers natural gas. It transports approximately 30% of the country's natural gas through its Transco pipelines between Texas and the Eastern Seaboard. That natural gas "superhighway" powers nearly half of our domestic data centers.
It's also building "behind-the-meter" (BTM) systems at data centers to provide hyperscalers with a steady supply of natural gas that bypasses utility company bottlenecks. Setting up a grid-based natural gas connection can take four to seven years, while Williams can deploy a BTM system in just 18 to 24 months. Those advantages make Williams more of an AI infrastructure play than many other midstream companies.
Why is Williams a safe stock to buy in September?
September is typically a bad month for stocks because institutional investors rebalance their portfolios by pruning their winners and losers. That selling pressure can drive retail investors toward more conservative investments like Williams.
Williams' stock has already risen 25% year to date, but it still trades at less than 13 times next year's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Analysts expect its adjusted EBITDA to grow at a 7% CAGR from 2025 to 2028.
Its available funds from operations (AFFO) rose 17% year over year to $3.2 billion in the first half of 2026, easily covering its dividends with a 2.5x ratio. Therefore, it still has plenty of room to increase its dividend, which it has already raised annually for the past nine consecutive years. So if you want a cheap stock with a decent dividend, plenty of exposure to the AI boom, and can resist a downturn in oil prices, Williams checks all the right boxes.
