Anytime energy prices crash investors naturally turn timid and question the growth prospects of energy stocks. However, as its last quarterly earnings conference call makes clear, Williams Companies (NYSE:WMB) is likely to remain one of America's best high-yield dividend growth stocks for four key reasons: a diversified business model, strong growth in fixed-fee cash flow, a massive backlog of growth projects, and an ambitious, sustainable dividend growth plan made stronger by an upcoming merger with its MLP, Williams Partners (NYSE:WPZ)

Diversified business model can take commodity hits

"We are also reaffirming our EBITDA and dividend and distribution growth for both Williams and Williams Partners, but we do expect that 2015 to be near the low end of our ranges as we communicated in our 2014 year end conference call." -- Alan Armstrong, President and CEO

This quote matters because management is reaffirming its guidance in the face of three headwinds: its Geismar plant won't be fully operational until June, ethylene prices are lower than projected due to weak natural gas liquids (or "NGL") prices, and some Marcellus gas producers are decreasing production due to lower gas prices. 

In fact, Williams' diversified business model has been able to drastically grow its fixed-fee, long-term contracted revenue despite a complete collapse in NGL margins in recent years. 

Source: Williams Cos investor presentation.

Continued strong growth in fixed fee revenue

"All five of WPZ's operating areas had fee-based revenue growth and four out of the five enjoyed double-digit percentage growth compared to first quarter of '14." -- Alan Armstrong President and CEO

Fixed-fee revenue is important because it's derived from long-term contracts that usually have built in inflation protection and provide a steady source of predictable cash flow from which to pay growing dividends. If we look at Williams' operational segments, we can see that the company is growing fixed-fee revenue at an impressive pace.

  • Access Midstream fixed-fee revenue up 11% year over year
  • Atlantic Gulf segment up 22%
  • Northeast Gathering and Processing up 43%

Even more important are the company's plans going forward. 

Short-term future investment almost exclusively focused on fixed-fee projects

"About $9.3 billion of our 2015 through 2017 in-guidance growth CapEx, 99% of this growth CapEx is focused on fee-based projects." -- Alan Armstrong

This laser-like focus on fixed-fee contracted projects should greatly improve the company's predictable cash flows, including over the next few quarters. For instance, Williams' Keathley Canyon Connector project came online only in March, and thus contributed less than a month's worth of cash flow this quarter.

In addition, in April Williams acquired an additional 21% stake in the Utica East Ohio gathering system, which services the Utica shale -- America's fastest growing gas formation. That deal doesn't close until mid-July, so its extra cash flow won't be registered until the third quarter of 2015. 

All that extra fixed-fee cash flow will greatly aid Williams in achieving its aggressive dividend growth targets.

Sustainable, growing dividend made even better by upcoming merger

"Overall coverage for WMB was at 1.14 times and this was after increasing our quarterly dividend per share up to $0.58, which was up from $0.40 last year." -- Alan Armstrong 

Before the recently announced $13.8 billion buyout of the company's MLP, Williams Partners, management was targeting 10% to 15% dividend growth and 7% to 11% distribution growth for Williams Cos and Williams Partners, respectively, through 2017. More importantly, management claimed it could accomplish this while maintaining a sustainable payout coverage ratio of 1.1.

However, thanks to the benefits of the merger -- lower costs of capital, streamlined management structure, and large potential tax deferments -- Williams is guiding for a 10% increase in the Q3 2015 dividend and 10% to 15% dividend growth through 2020 while generating an even safer dividend coverage ratio of 1.2.

Bottom line: Post-merger Williams Companies should be an even better dividend growth stock
Even without its buyout of Williams Partners, Williams Cos was one of America's best income investments. Now the combined benefits of the merger with its MLP should help the new, larger Williams achieve strong, consistent, and sustainable dividend growth for many more years to come.