North American energy firm, Williams Companies Inc. (WMB) has hiked its third-quarter common stock dividend to 56 cents as per its plan which was announced on Jun 15, 2014. The new dividend, which represents a year-over-year increase of 53% and a sequential hike of 32%, will be paid on Sep 29, 2014 to shareholders of record as of Sep 12. Based on the closing price of $58.32 as of Aug 21, 2014, the expected annual dividend of $2.24 affirms a yield of 3.8%.
Williams Companies has been able to increase its third-quarter dividend as it concluded the acquisition of the remaining 50% general partner (GP) interest and 55.1 million limited partner (LP) units in Access Midstream Partners LP (ACMP) on Jul 1, 2014 – thereby gaining full GP ownership and 50% LP interest in the Oklahoma City-based partnership. Williams has significantly strengthen its midstream assets after the acquisition, as Access Midstream holds a strong portfolio of natural gas pipelines and gathering assets in the Marcellus, Barnett, Utica, Haynesville, Eagle Ford, Mid-continent and Niobrara shale regions (read our blog: Williams Companies Buys Access Midstream, to Merge Unit).
Moreover, Williams Companies retained its previous dividend projection of $1.96 and $2.46 for 2014 and 2015, respectively. For 2015 through 2017, the company plans a 15% dividend hike, as declared previously.
Tulsa, OK-based Williams Companies is a premier energy infrastructure provider in North America. The company’s core operations include finding, producing, gathering, processing, and transportation of natural gas. We believe that the company’s midstream assets are less sensitive to commodity prices and help to maintain a steady stream of revenue and cash flow even if natural gas prices stay at low levels.
However, we remain concerned about Williams Companies’ high debt levels, which leave it vulnerable to an extended drop in commodity prices. As of Jun 30, 2014, Williams Companies had long-term debt of $15.5 billion, representing a debt-to-capitalization ratio of 67.4%.
As a result, the company carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can consider better-ranked players in the oil and gas sector like Cameron International Corporation (CAM) and VOC Energy Trust (VOC). Both stocks sport a Zacks Rank #1 (Strong Buy).
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