Williams Partners’ distribution guidance
According to Williams Partners’ (WPZ) management, distributions are expected to stay flat for the rest of 2015. WPZ’s quarterly distribution per unit of $0.85 for the rest of 2015 should bring the total to $3.40 for the whole of 2015. This still represents a 29% YoY (year-over-year) increase for fiscal 2015 versus fiscal 2014.
One reason for WPZ’s flat distributions in 2015 could be its weak distribution coverage ratio and high leverage. WPZ’s distribution coverage improved in 2Q15 compared to 1Q15, but it still remained less than one. The increase in the partnership’s distributable cash flow over the coming quarters should help boost its distribution coverage ratio to comfortable levels.
Breakup fees for termination of WMB-WPZ merger agreement
Williams Companies (WMB), WPZ’s general partner, has agreed to pay $428 million in termination fees for the termination of the earlier announced WMB-WPZ merger. The fees would be paid through “an irrevocable waiver of a portion of the quarterly incentive distributions Williams is entitled to receive from Williams Partners.” This is expected to boost Williams Partners’ distributable cash flows and coverage ratio.
Williams Partners’ distribution yield
WPZ has a current distribution yield of 10.0%. WPZ’s high distribution yield can be attributed to the tier-four IDRs (incentive distribution rights) present in its capital structure, its flat distributions, and its low coverage ratio. The tier-four IDRs lead to a large share of incremental distributions being paid to the company’s general partner.
WPZ peers Oneok Partners (OKS) and Enbridge Energy Partners (EEP) also have IDRs in their capital structures. These companies are trading at a current distribution yield of 9.1% and 8.4%, respectively. Meanwhile, Enterprise Product Partners (EPD) doesn’t have any IDRs, and it’s trading at a current yield of 5.3%. WPZ’s general partner, Williams Companies (WMB), which is structured as a c-corp, has a current dividend yield of 6.1%. Together, EEP, OKS, EPD, and WPZ account for ~24.3% of the Global X MLP ETF (MLPA).