I've been watching Williams Cos. (NYSE: WMB) for a while now, and it's one of my favorite dividend stocks. But despite its steady cash flow and strong balance sheet, the company has never been considered a sexy name on Wall Street. That's because it doesn't make headlines like some larger rivals do — especially regarding mergers and acquisitions (M&A).
But here's something you might not know: Williams Cos. is currently in talks with several other major pipeline operators about potentially merging their businesses into one entity that would serve as both an energy provider and natural gas storage facility provider, as well as a distributor throughout North America.
When an economic recovery finally comes to pass, it could be a big one. Oil prices are near their lowest levels in years, with natural gas at multi-year lows. It's not hard to see why this could lead Williams Cos., which owns natural gas distribution networks across the United States and Canada, into a golden age for dividend growth in the coming years and increased revenue from new customers who need its services more than ever before.
Beginning of a new rise
Based on what we saw with the midstream MLP space in the form of a new round of merger and acquisition activity, Wall Street is getting more bullish about the prospects for higher energy prices.
Williams Cos. (NYSE: WMB) is a great example. The company's stock has been on fire over the past few months. Investors have realized how much value can be unlocked by owning natural gas and oil infrastructure assets with solid cash flow generation capabilities.
WMB stock has risen about 30% YTD, because of positive news surrounding its business operations — including the recent announcement that it completed its merger with Southwestern Energy Co., which will create a new holding company called Williams Holdings Inc., worth approximately $19 billion at current prices (that's more than 25 times greater than their initial offering price).
This deal makes sense because it gives them access to an additional 50 million acres across the country where they can drill for more natural gas reserves, thus increasing their production capacity while also strengthening their position in key markets across America's midstream energy ecosystem like Texas Gulf Coast region or Pennsylvania Marcellus Shale area (where WMB owns three shale gas wells).
Hot Stock But Not Sexy
Natural gas giant Williams Cos. (NYSE: WMB) is a boring name, but it's not a boring business. The stock has been on an upswing lately thanks to some positive catalysts: namely, a new agreement with AEP Ohio Power Company (AEP),which gave WMB access to more than 10 billion cubic feet per day of natural gas from locations near Cleveland; and strong quarterly earnings results from its British Columbia pipeline subsidiary that were announced in April 2019.
But there are a few reasons investors should give WMB stock some love. The company has a strong balance sheet, with over $1 billion in cash and short-term investments. Its stock is also high-yield, meaning it pays out dividends that yield close to 10%.
As an energy company, WMB's earnings depend on natural gas prices—and they've been rising recently. So if you're looking for a dividend-paying play in this sector, Williams Cos. might be worth considering as an investment option.
Those looking for an excellent dividend play in energy stocks should look at Williams Cos. It's an MLP whose business is booming. With the recent merger and acquisition activity that we've seen from some of its peers, you can expect this stock to keep up its strong performance.