The recent market volatility is making many investors nervous, doubly so regarding energy stocks that have been punished by the worst oil price crash since the financial crisis. Despite these troubles, I believe there are two strong reasons Williams Companies (WMB +1.63%) and its master limited partnership, Williams Partners (NYSE: WPZ), remain among the best high-yield stocks long-term income investors can buy today.
High-yield equities with strong payout growth potential
Williams is the general partner of Williams Partners, which recently merged with Access Midstream Partners to become one of the largest U.S. natural gas pipeline operators, transporting 20% of the nation's booming natural gas supply.
In addition to its enormous size -- economies of scale are important in this industry as they help lower the cost of capital and improve profitability -- management has said one of its goals is to sustainably grow Williams' payout at an impressive rate, as shown in the below table.
| Company or MLP | Yield | Projected 3-Year Payout Growth Rate |
| Williams Cos. | 4.80% | 10%-15% |
| Williams Partners | 6.9% | 7%-11% |
| S&P 500 | 1.90% | 5.17% |
Sources: Yahoo! Finance, Multpl.com, Williams Cos. conference call
If Williams can achieve this dividend and distribution growth, combined with its already generous payout, then long-term income investors have an increased probability of outperforming both the market and other dividend stocks. But how likely is Williams to achieve these growth aims? In my opinion, rather likely, due to its impressive growth plans and excellent recent execution.
Massive investment in fixed-fee projects means safe and likely strong payout growth in the years to come
Williams recently announced blowout earnings results, and it plans to sustain that growth momentum with over $9 billion of investments in the next two years, 99% of which will be in fixed-fee long-term contract-backed projects. These projects are not only expected to help Williams Partners grow its adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortization, by 33% by 2017, but should also help both Williams entities secure and increase their generous payouts. That's because 88% of Williams' operating margin is derived from fixed-fee sources, and that number is set to soar in the years to come.
Longer term, Williams' growth plans are even grander, with almost $30 billion in its growth project backlog set for completion within the next five years.
Source: Williams Cos. investor presentation.
Takeaway: Focus on the long-term potential of quality, high-yield energy investments
Numerous studies have shown that no one can consistently predict the short-term direction of either oil prices or the stock market. Thus, my advice to long-term investors is to focus on finding high-quality, high-yield equities that tap into America's incredible shale energy potential and dollar-cost average into these positions rather than waiting on the sidelines to see if prices will decline. In my opinion, Williams Cos. and Williams Partners are among the better choices in the midstream pipeline industry due to their combination of high yield and impressive payout growth potential. A high and growing proportion of cash flow that is secured with long-term fixed fee contracts only makes Williams an even more appealing long-term income choice.
