Tags: Williams | Partners | MLP | WPZ

Williams Partners: Solid Midstream Gas MLP

By    |   Thursday, 09 Feb 2012 11:00 AM

Williams Partners (WPZ) represents a solid player in the universe of master limited partnerships that operate midstream natural gas assets.

The partnership owns interests in three major interstate natural gas pipelines in addition to large-scale natural gas gathering and processing assets in the U.S. Rocky Mountains and both onshore and offshore along the Gulf of Mexico.

Pipeline companies have a great business model. They sign long-term contracts to transport energy products, and those contracts generally have a price escalator. That enables strong MLPs to throw off hefty dividends.

Williams Partners has lifted its dividend by a whopping 62 percent over the past five years. Its yield recently stood at 4.91 percent.

The lynchpin of Williams' holdings is the Transco pipeline, a 10,000-mile system that runs from southern Texas to New York. It has 8.6 billion cubic feet of capacity and is responsible for $1.3 billion a year in fee-based transportation revenue.

Transco should benefit from new gas shale projects, as it offers a perfect route to market for gas extracted from the Eagle Ford, Haynesville, Barnett, and Marcellus shales, according to Morningstar.

Caution


One note of caution: MLPs aren’t an undiscovered asset class, and Williams Partners itself isn’t an undiscovered player. Williams Partners shares have produced an annualized total return of 62 percent over the past three years, in part because buyers have bid up its share price.

At some point, there could be a correction, and that’s probably going to be the best time to step in and buy any stock.

Williams Partners’ profit jumped 35 percent to $342 million in the third quarter from a year earlier. Distributable cash flow also gained 35 percent to $368 million.

Of 11 analysts tracked by Thomson Reuters, seven rate Williams Partners shares a hold, three a buy, and one a strong buy.

Williams Partners next reports on Feb. 22.

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2012-00-09
Thursday, 09 Feb 2012 11:00 AM
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