Williams Companies (WMB 0.78%) and its MLP, Williams Partners (NYSE: WPZ), have a history of missing Wall Street earnings expectations, and this quarter was no different. Find out why you should ignore Wall Street expectations focus on three far more important things instead. 

The numbers themselves
Wall Street was expecting Williams Companies to report a $0.15-per-share net profit, and Williams missed that figure by 40%, reporting just $0.09 per share. Worse yet, that profit is down 55% compared with last year's $0.20-per-share net profit. However, that decline is mostly due to the lack of an insurance payment Williams received in Q1 2014 for business interruption caused by an explosion at its Geismar olefins plant in 2013. 

A better metric to look at to assess profitability from a pipeline operator's current assets is income from continuing operations, which came in better at $0.16 per share, but still down 43% year over year. Again, most of that was due to the lack of the Geismar insurance payment, but a sharp decline in natural gas liquids, or NGL, margins also played a part. 

3 things to focus on
Anytime you're dealing with midstream companies or MLPs, earnings per share -- which can fluctuate crazily because of one-time charges or credits -- are best ignored in favor of three factors that better represent the future sustainability and growth prospects of a company's payout: adjusted EBITDA, the payout coverage ratio, and progress on its backlog of growth projects. 

The profitability metric that matters
Williams Companies' distributions from its MLP this quarter rose 13% to $515 million. That allowed adjusted EBITDA -- or earnings before interest, taxes, depreciation, and amortization, a much better metric for profitability -- to rise 12% to $918 million. 

Meanwhile Williams Partners' adjusted EBITDA rose 19% to $917 million, primarily because of the Access Midstream merger, but also helped by a 26% and 85% increase in adjusted EBITDA from its Atlantic Gulf and Northeast G&P segments, respectively.

Overall fixed-fee based revenue -- enshrined in long-term contracts that make up the core of Williams' business model -- rose 66% to $490 million for the quarter. Even excluding the Access Midstream merger, fee-based revenue soared 16% showing the strength of Williams' diverse asset base. 

Payout coverage ratio: How safe is the dividend?
Since high dividends and distributions are the main reason for owning pipeline companies and MLPs, the payout coverage ratio is a key metric to watch.

  • Williams Companies' dividend coverage ratio: 1.14 versus 1.42 in Q1 2014.
  • Williams Partners' distribution coverage ratio: 0.89 versus 1.03 in Q1 2014.

While true that the payout coverage ratio for both Williams Companies and Williams Partners declined compared with last year's quarter, keep in mind that -- courtesy of the Access Midstream merger -- management increased Williams Companies' and Williams Partners' payouts by 45% and 47%, respectively, fully explaining the decreased coverage ratios.

While Williams Partners' coverage ratio of below 1 might threaten the distribution should it become a long-term occurrence, given the recent payout increases, I believe this non-sustainable distribution coverage ratio is temporary. That's especially true given that this quarter Williams Partners grew its distributable cash flow, or DCF -- from which distributions are paid -- by 11% year over year.

Backlog projects on schedule
According to Alan Armstrong, Williams' president and CEO, major projects are being completed on schedule to execute on the company's $30 billion growth backlog. 

Source: Williams Companies investor presentation.

Specifically, the Gulfstar One and Keathley Canyon Connector are nearing completion, as is the restarting of the Geismar plant, which should be fully online by the end of April or May. 

Combined with projects about to be placed in service, such as the Rockaway Lateral and the mainline portion of Leidy Southeast -- both expansions of the Transco pipeline system -- management is confident enough to reiterate its 2015-2017 guidance for adjusted EBITDA growth of 15.8% and 15.6% CAGR for Williams Companies and Williams Partners, respectively. While lower energy prices are likely to make such results on the lower end of the long-term guidance offered last quarter, the company still believes it can achieve its payout growth targets of 10% to 15% dividend growth for Williams Companies and 7% to 11% distribution growth for Williams Partners over the next three years. 

Bottom line: Ignore earnings and focus on what matters in terms of long-term payout growth 
Whether or not Williams Companies hits Wall Street's quarterly earnings targets is irrelevant to long-term dividend growth investors. Instead, focus on what will directly affect Williams' ability to sustain and expand its payouts: growth in adjusted EBITDA, successful project completion, and sustainable payout coverage ratios. On those three important metrics, Williams Companies and Williams Partners are doing well -- despite the sharp drop in energy prices -- which should give income investors confidence in Williams' ability to deliver long-term market-beating total returns.