Oil and gas pipeline operator Williams got a boost Tuesday after it said it would accelerate dividend payouts as an underlying pipeline operator expands in shale formations rich in natural gas.
Williams Companies (WMB) raised its dividend by 55 percent to $1.20 per share from $1.09 per share, and now expects to increase its payout by 20% in 2013 and again in 2014. Its indicated yield was about 3.3% before the news.
Williams Companies stock is up $1.15, or 3.8%, to $31.57.
Driving yield growth is Williams Companies’ 72 percent stake in its master limited partnership Williams Partners (WPZ), which owns gas pipeline, gathering, processing and storage assets. The partnership on Monday said it would pay about $2.5 billion for Caiman Eastern Midstream, which is backed by private equity investors includingÂ EnCap Investments and Highstar Capital.
The acquisition will expand Williams’ gas “liquids” exposure, especially in the Marcellus Shale, as producers focus on recovering more ethylene, propylene, natural gas liquids and related products versus rock-bottom-priced “dry” natural gas. (see our previous post, “Will Natural Gas Price Sink to $1?“)
New revenue is an obvious boon for the parent. Since MLPs do not pay corporate taxes, and distribute most of their cash flow as tax-deferred dividends, Williams Companies will collect a greater yield following the MLP’s acquisition. Williams Partners estimates 300 trillion cubic feet of natural gas exists within a 35-mile radius of the Caiman Eastern gathering system.
Parent Williams said in its release that it
“expects to receive cash distributions of approximately $1.5 billion from Williams Partners in 2014, a 65-percent increase over the approximately $910 million it received from Williams Partners in 2011.”
While the parent is infusing $1 billion into its MLP, in exchange for shares, to fund the acquisition, Williams Partners units, down $1.18, or nearly 2%, to $59.88, are off. It cut its earnings guidance following the announcement. The MLP is issuing shares in addition to cash paid to Caiman for the purchase.
Williams Companies said it will
“purchase approximately 16.3 million Williams Partners limited-partner units at a price equal to the price of the units Williams Partners will issue to Caiman” and referred to the MLP’s press release on the deal.
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