Williams is benefiting from accelerating natural gas demand for data centers and electric vehicles.
The company grew rapidly by expanding its gas infrastructure footprint.
It has a large backlog of development projects until 2030. and more.
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Unless you work or invest in energy, you’re probably not familiar Williams(NYSE: WMB). You’ve probably felt its effects, though. Its 33,000 miles of pipelines transport a third of the natural gas used in the United States, which it supplies to utilities to generate electricity and distribute to customers to heat their homes.
Williams’ gas infrastructure has become increasingly important in driving the expected increase in electricity demand from catalysts such as AI data centers and electric vehicles. This strong growth driver from 2022 led to an 80% increase in the share price, almost doubling S&P 500the return Growing gas-fueled cash flows have allowed it to consistently raise its dividend.
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Williams has been a very reliable dividend stock for many decades. The pipeline company has paid dividends for 51 consecutive years. Although Williams has not increased its dividend every year, as of 2020 it increased the payout at a 5% compound annual rate. The company’s payout currently stands at 3.2%, more than double the S&P 500’s level of 1.2%.
The natural gas infrastructure giant supports its high-yielding dividend with resilient cash flow. Most of the company’s revenue comes from assets such as pipelines and refineries that generate revenue through government-regulated rate structures — prices set by regulators to ensure stable returns — or under long-term fixed-rate contracts that guarantee set payments over a longer period of time. This business model helps limit the impact of commodity price volatility.
Williams also backs its dividend with a very conservative financial profile. The company currently earns enough cash to cover its dividend payout at more than 2.3 times, which means it’s making more than twice the cash it needs to pay dividends. This allows it to maintain billions of dollars in excess free cash flow each year to finance expansion projects and maintain a strong investment grade balance sheet. Williams expects its leverage ratio — its total debt to annual earnings before interest, taxes, depreciation and amortization (EBITDA) — to be less than 3.7 times this year, a very comfortable level for a company that produces stable cash flow.
The company’s stable cash flow and solid financial base ensure a reliable dividend.
Williams has made significant investments over the years to expand its natural gas infrastructure footprint. The company has completed several organic expansion projects to build additional gas gathering and processing infrastructure and increase the capacity of its large-scale gas pipelines. In addition, Williams completed several acquisitions, including the $2 billion purchase of a major gas storage portfolio.
Companies are expecting much more growth. It has an increasing number of commercially assured development projects, and projects that are currently on track for commercial launch by 2030. of the third quarter, giving it significant visibility into its long-term growth profile. Its projects include several pipeline expansions, several gas-fired power plants and other gas infrastructure investments.
In the meantime, it has many more development projects. Williams estimates there are more than 30 potential projects to expand pipeline systems and transport more gas to industrial, power and LNG facilities in the U.S., totaling more than $14 billion. USD potential of future investments. The company is also pursuing additional gas-fired power plant construction projects to meet the growing electricity needs of data centers and other customers.
In addition to organic growth, Williams has the financial wherewithal to continue to pursue strategic acquisitions as opportunities arise. The company recently acquired Saber Midstream for $160 million. USD and Rimrock Energy Partners for 325 million. USD to strengthen its gas infrastructure in two key regions.
Williams’ gas infrastructure investments should allow it to continue to grow FFO at a fast pace in the coming years, giving it more leverage to continue growing its attractive dividend.
Williams has produced market-beating returns in recent years, driven by investments to expand gas infrastructure operations. The company has a number of ongoing development projects and even more projects under development. These investments help to further increase the dividend. This combination of revenue and growth would allow Williams to continue producing high-octane total returns.
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Matt DiLallo has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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