Is This a Durable Dividend Stock to Buy?

The Williams Companies, Inc. (WMB), a leading energy infrastructure company, has been a reliable dividend stock over the years. The company has paid a common stock dividend every quarter since 1974 and has increased its payout in most years. The company’s dividend payments have grown at a CAGR of 6% since 2018.

The natural gas pipeline company currently offers an impressive 5.1% dividend yield, placing it toward the top end of dividend payers in the S&P 500 index, with an average yield of around 1.5%.

On October 24, WMB’s Board of Directors approved a regular dividend of $0.4475 per share or $1.79 annually, on the company’s common stock, payable on December 26, to stockholders of record at the close of business on December 8. This represents an increase of 5.3% from its fourth-quarter 2022 quarterly dividend of $0.425 per share.

Now, let’s discuss several factors that could impact WMB’s performance in the near term:

Mixed Financial Performance

The pipeline giant reported third-quarter 2023 adjusted EPS of $0.45, beating the analysts’ estimate of $0.41. However, this compared to the adjusted EPS of $0.48 in the prior year’s quarter. The decline in the bottom year was due to lower-than-expected contributions from two major segments – West & Gas and NGL Marketing Services.

Also, WMB’s adjusted net income came in at $547 million, down 7.6% from the same quarter of 2022. But year-to-date adjusted net income grew by $171 million over the previous year to $1.75 billion.

The company’s third-quarter 2023 Available Funds from Operations (AFFO) declined slightly by $11 million from the year-ago value to $1.23 billion, primarily due to lower distributions from certain equity method investments partially offset by higher operating results excluding noncash items. However, its year-to-date 2023 AFFO increased by 9.2% year-over-year to $3.89 billion.

William’s dividend coverage ratio for the third quarter was 2.26x (AFFO basis), compared to 2.40x in the same period in 2022. Its year-to-date 2023 dividend coverage ratio was 2.38x versus $2.29x over the prior year.

WMB’s third-quarter adjusted EBITDA grew marginally year-over-year to $1.65 billion, driven by the previously described higher services revenues, partially offset by lower upstream results, reduced marketing margins, increased operating costs, and lower JV proportional EBITDA. Year-to-date 2023 adjusted EBITDA rose by $414 million over the prior year to total $5.06 billion.

Further, the company’s quarterly revenue came in at $2.56 billion, missing the consensus estimate of $2.59 billion, mainly due to lower product sales. The top line also declined from the year-ago value of $3.02 billion.

As of July 30, 2023, the natural gas pipeline company’s cash and cash equivalents stood at $2.07 billion, compared to $152 million as of December 31, 2022. Its current assets came in at $4.26 billion versus $3.80 billion as of December 31, 2022.

2023 Financial Guidance

WMB raised its midpoint of guidance and now expects full-year adjusted EBITDA between $6.60 billion and $6.80 billion. Its growth capex guidance remains unchanged, between $1.60 billion to $1.90 billion. Also, Williams expects a leverage ratio midpoint of 3.65x, allowing the company to retain financial flexibility.

Optimizing Portfolio Through Divestments and Re-Investing in Assets Strategic to Footprint

During the third quarter of 2023, WMB sold its Bayou Ethane system for $348 million in cash, representing a last-12-month multiple over 14x adjusted EBITDA. The transaction comprises long-term ethane takeaway agreements, locking in flow assurance for Discovery and Mobile Bay producers.

The proceeds from the sale of Bayou will contribute to funding the company’s extensive portfolio of attractive growth capital investments, including transactions in Colorado’s Denver-Julesburg (DJ) Basin. Williams announced an acquisition of Cureton Front Range LLC, a Denver-based, growth-oriented midstream company focused on offering creative and transparent commercial solutions to oil & gas producers in the DJ Basin.

Cureton’s asset base consists of more than…

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