Williams Companies To Super-Size Dividend Growth Rate

Jun. 6.12 | About: Williams Companies (WMB)

Recently, I wrote about the MLP Williams Partners L.P. (NYSE:WPZ) in an article titled, Williams Partners Poised For Impressive Dividend Growth. From the title you can see that Williams Partners is on a path of aggressive dividend growth. Investors interested in this MLP may want to take a look at Williams Companies (NYSE:WMB) which holds the general partnership of WPZ and has changed its dividend policy to pass through more of the earning the Companies receive from the Partners holdings.

As the owner of the general partner and incentive distribution rights from Williams Partners plus holding 68% of the limited partner shares, Williams Companies is the primary beneficiary of the revenue and distribution growth being experienced by Williams Partners. The Partners holdings and rights account for about 80% of William's operating income. For the first quarter of 2012, the Partners contribution to Williams earnings increased by 11% over the first quarter of 2011.

William Companies also owns what the company calls Midstream Canada and Olefins - MC&O. In the Canadian oil sands fields off-gas is processed for natural gas liquids and olefin petrochemicals. Normally the off-gas is burnt as energy. The Williams upgrader process removes valuable products and returns clean burning natural gas to the oil sands company to burn for energy. Currently the company is processing 15,000 barrels per day with growth prospects up to at least 5 times the current level. The result is high value products for Williams at much lower costs than the traditional methods to process or produce the products. Williams has just completed a 260 mile pipeline to bring the processed NGLs south to market. Williams is the only company in the world doing this process and is locking up a lot of the potential in the oil sands production area. For the first quarter, MC&O accounted for 16% of profits and those profit were up 39% from a year earlier.

Williams Companies has changed its dividend policy to pay a larger amount of net income out as dividends. In 2010, the dividend rate was 12.5 cents quarterly or 50 cents for the full year. For the second quarter of 2012, a 30 cent dividend was declared - a $1.20 annual rate. Management stated during the 2012 Analyst Day it expects to increased the dividend every quarter in 2012 and continue to increase the dividend in 2013 and 2014, increasing the payout by a total of 30% over the three-year period - 2012 to 2014 - to a projected $1.74 annual dividend rate. Williams Companies shares currently yield 4.10% so investors buying now at the current share price will be earning close to 6% on dividends alone by the end of 2014. It is not unreasonable to expect the share price to increase by 30% over the next to years to keep the dividend yield in line.

Williams Companies is very positive the company will hit the dividend growth projections. The 2014 projected dividend is expected to be about 80% of the cash available for distribution in that year. Williams has not projected dividend growth beyond 2014, but the company continues to develop projects has it has in the past to provide long term growth of revenue and distributable income.

WMB ChartClick to enlarge

WMB data by YCharts

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.