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Why Williams Partners Announced a Distribution Cut

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Jan. 10 2017, Published 3:38 p.m. ET

Williams Partners announced distribution cut

Williams Partners (WPZ) has announced a distribution cut to improve its coverage ratio. Its distribution will be reduced to $0.60 per share beginning in the first quarter of 2017. That represents a fall of 29.0% compared to $0.85 at the end of the fourth quarter of 2016.

Ten MLPs announced distribution cuts up to the third quarter of 2016. For more details, be sure to read Which MLPs Could Continue Strong Distribution Growth in 2017?

The partnership is targeting to raise its distribution 5.0%–7.0% annually over the next several years while mainlining a distribution coverage of 1.2x for 2017 and more than 1.1x after that.

The partnership’s distribution yield might fall after the financial repositioning. A fall in distributions would indicate an improved coverage ratio and a better balance sheet position.

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Williams Companies to revive dividends

Williams Companies (WMB) has decided to raise its dividend to $0.30 per share beginning in fiscal 1Q17. The company had earlier cut its dividends from $0.64 per share to $0.20 per share to support Williams Partners’ growth plans. That was a 50.0% increase.

The C corporation is targeting a dividend growth of 10.0%–15.0% over the next several years while mainlining a distribution coverage of 1.3x for 2017 and more than 1.1x after that. WMB expects to use the excess cash flow to reduce leverage. The company would also discontinue its participation in DRIP (Distribution Reinvestment Plan) after the completion of the transaction that we looked at in the previous part of this series.

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