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WHY WILLIAMS COMPANIES CAPEX WILL PAY OFF IN RICH DIVIDENDS

|Includes:ABB, ACMP, AME, EMR, HON, Williams Companies Inc (WMB), WPZ

Analysis prepared by Nathan Yates, Research Associate

Key take-aways from Williams Companies investor day:

U.S. natural gas market - see 3% supply growth, 2% demand growth to 2030. Goal to be #1 or #2 North American gas infrastructure developer.

Northeastern shale plays (Marcellus, Utica) - volumes up 64% in 2013; expect to double by '16 to 4 Bcf/d.

Geismar update - #2 cash-generating facility offline since 2013.06.13 due to explosion but repairs 93% complete.

NGL Supply Growing - requires movement from source of production to demand centers on the Gulf Coast and in the industrial Midwest/Northeast. This has driven a capital spending ramp….

Capital spending - which is peaking in 2014.

Entity (Ticker)

2014

2015

2016

Williams Companies (NYSE:WMB)

$455-565

$405-505

$470-630

Williams MLP (NYSE:WPZ)

3,305-3,875

2,195-2,705

2,050-2,510

Access Midstream JV (NYSE:ACMP)

1,100-1,200

900-1,000

600-800

Totals

$4,860-5,640

$3,500-4,210

$3,120-3,940

Change - midpoint

 

(27%)

(8%)

Click to enlarge

Industrial company impact: These companies may face (manageable) headwinds in their midstream businesses beginning in 2015 - AME, ABB, HON, EMR.

As capacity additions ramp and capital spending falls shareholders and unit holders benefit….

Dividends - parent company distributions will grow faster than MLP through '16.

- Williams Companies (WMB) - expect 20% per annum through 2016. High coverage.

- Williams MLP (WPZ) - distributions up 6% in 2014-15 with 4.5% growth in 2016.

- Access Midstream (ACMP) - paid $1.94 in '13; see 178% growth to '16 implies $5.39.

We think investors who care about growing dividends should give ACMP a look. The units closed at $59.04 today and assuming even a 5% dividend yield in '16 could trade to $105+ over the next 2-3 years.

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

Stocks: WMB, WPZ, ACMP, AME, EMR, HON, ABB