A Top Energy Dividend Stock for a Lifetime of Passive Income

Despite a rapid growth in renewables, the global natural gas demand is expected to continue rising in the decades to come. The popularity of natural gas stems from it being a cheap, convenient, and relatively clean source of energy. Williams Companies (WMB -2.33%) provides infrastructure to gather, process, store, and transport natural gas in the U.S.

It also offers fractionation services to split natural gas liquids into components like ethane and propane. Let’s look at why Williams Companies is well placed to keep growing in the years to come.

Strategically located assets

A substantial chunk of the growth in natural gas demand in the U.S. is expected to come from exports. LNG (liquefied natural gas) exports could contribute the bulk of this growth.

Expected natural gas demand growth.

Image source: Williams Companies.

LNG exports are expected to add 9.5 billion cubic feet per day (Bcf/d) — more than any other sector — to natural gas demand in the continental U.S. from 2021 to 2030. The total U.S. demand is expected to grow by 14.3 Bcf/d during this time frame. 

A key factor that supports Williams Companies growth is the strategic location of its assets, which leads to a robust demand for their capacity. As an example, Williams’ 9,800-mile Transco pipeline is well located to benefit from the expected growth in LNG exports.

Transco's network serving LNG market.

Image source: Williams Companies.

Transco natural gas volumes serving LNG facilities have risen over the years. This growth is partly a result of the pipeline supplying new LNG facilities. In addition to the first US LNG facility at Sabine Pass, the pipeline now serves the Corpus Christi, Freeport, and Cameron LNG facilities on the Gulf Coast and Cove Point and Elba Island on the East Coast.

With rising LNG exports, the Transco system should find robust demand in the years to come.

An improved balance sheet

Williams Companies had a difficult time in 2014-15, when a steep fall in energy commodity prices severely hurt the company’s earnings. Like many other companies in the sector, Williams had to cut its dividend due to its high debt levels. In the last six years after the cut, Williams has focused on strengthening its balance sheet.

WMB Financial Debt To EBITDA (Annual) Chart

WMB financial debt to EBITDA (annual). Data by YCharts.

The company’s ratio of debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) has improved significantly from the end of 2015. At the same time, Williams’ available funds from operations (AFFO) in the last four years was, on an average, double the amount it paid in dividends each year. That means the company’s dividend payments are much safer now. The stock offers a yield of nearly 5.3% as of this writing. 

Its earnings are largely fee-based, so short-term fluctuations in commodity prices don’t impact its earnings much. The strengthened balance sheet means that the company might not have to take a drastic step, such as a dividend cut, even if commodity prices remain depressed for some time.

And the company is investing in numerous growth projects, including in the clean energy segment, that should support earnings growth in the coming years.

All in all, fee-based earnings, strategic assets, and an improved balance sheet make Williams Companies a top stock that can pay you a growing dividend for decades to come.

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