Natural gas pipeline and midstream MLP Williams Partners L.P. (WPZ) released a trio of press releases on Monday, July 23, which should lead to a chance to pick up this dividend growth master limited partnership at a discount from recent share prices.
The good news is that Williams Partners has increased the distribution rate to be paid in August to 79.25 cents per unit, up from the 77.75 cents paid in May. The dividend rate represents the 10th consecutive quarterly distribution increase and the amount is 8% higher than the year earlier dividend.
The not so good news is that Williams Partners has lowered its cash flow guidance for 2012. The causes for the lower distributable cash flow expectations are lower natural gas liquids - NGL - prices and higher maintenance costs. The NGL margins have been squeezed in the second quarter due to a mild winter and the resulting high propane supplies. Williams Partners is now using a 2012 forecast NGL margin of 67 cents per gallon at the guidance midpoint, down from an expected 78 cents at the start of the year. For the second quarter, the distributable cash flow is expected to come in at $289 million, down from $475 million in the 2012 first quarter.
As a result of the lower NGL prices, Williams has lowered distributable cash flow guidance - at the midpoint - by 5% for 2012. The expected cash flow numbers for 2013 and 2014 remain at the previous guidance levels. The company still plans to increase dividends by 8% in 2012 an 9% each year in 2013 and 2014.
At the current share price of $54.78, the planned $3.14 in total 2012 dividends puts the current yield at 5.7%. If Williams Partners hits the expected dividend payout for 2014, investors who buy at current prices will be earning almost 7% on the amount invested now.
Williams Partners is shooting for aggressive cash flow growth for the next three years, which may be overly aggressive as the current news indicates and energy prices decline. A rebound in NGL prices for the second half of 2012 would help. For 2013 and 2014, the company is working towards a greater portion of fee based revenue and less dependence on commodity prices.
The official second quarter financial report will be released next week on August 1. The Wall Street analysts have significantly lowered their estimates over the last week, but the earnings drop compared to last quarter and a year ago could lead to a sell-off of WPZ, presenting an attractive buying opportunity for investors committed to owning Williams Partners for the long haul.
The final piece of news was the announcement that Williams Companies (WMB) had agreed to drop down ownership of an olefins production light-end natural gas liquid cracker facility to Williams Partnerships. The plant will broaden the Partnership's product offering and reduce the exposure to ethane market price swings - a cause of the recent earnings reduction. Williams Companies owns the general partner interest and a majority of WPZ limited partner units.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.