uploads/2018/02/rev-eps-wmb-1.png

WMB’s Dividends: Key Drivers

By

Updated

What drove the revenue?

Williams Companies (WMB) is a US energy infrastructure company. Its revenue grew 2% and 9% in 2016 and 9M17, respectively. Both service revenue and product revenue drove growth in the periods. Both the William Partners and William NGL & Petchem Services segments drove growth in 2016. In 9M17, the only reportable segment was William Partners due to the sale of its Canadian operations. Growth in fee-based revenue and a reduction in direct exposure to commodities drove the numbers in 9M17.

Article continues below advertisement

What led to the recovery in negative EPS?

The cost of revenue fell 3% in 2016 before rising 37% in 9M17. As a result, gross profit grew 3% and 2% in 2016 and 9M17, respectively. Operating expenses fell 5% and 23% in 2016 and 9M17, respectively, due to lower asset impairment in 2016 and a substantial gain on an asset sale recorded in 9M17. 2017 recorded the sale of the Geismar olefins facility and Canadian operations, which led to 210% and 817% growth in operating income for 2016 and 9M17, respectively. The impairment of investment decreased in 2016 and was zero in 9M17. Interest expenses rose 9% in 2016 and fell 8% in 9M17, which led to negative adjusted earnings and EPS (earnings per share) in 2016 that recovered in 9M17. EPS for 9M17 were further affected by a higher number of outstanding shares.

Dividend yield and price performance

The dividend yield for Williams Companies fell significantly in 2016 and 2017 due to dividend cuts in both years. The 2016 dividend yield was further affected by price gains, unlike in 2017. The company generates enough free cash flow to pay off its dividends.

Article continues below advertisement

Drivers

The company placed four of its “Big 5” Transcontinental Gas Pipe Line Company expansion projects into service. It intends to expand services in the Northeast, followed by other expansion projects.

Stacking up against the broad indexes

A PE of 0x and a dividend yield of 3.8% compares to a sector average PE and a dividend yield of 775.2x and 6.7%, respectively. The SPDR S&P 500 ETF (SPY) has a PE of 18.7x and a dividend yield of 1.7%. The SPDR Dow Jones Industrial Average ETF (DIA) has a PE of 17.8x and a dividend yield of 1.9%.

Dividend ETFs with exposure to William Companies

The WisdomTree US Dividend ex-Financials Fund (DTN) has a PE of 19.6x and a dividend yield of 3%. The SPDR Portfolio S&P 500 High Dividend ETF (SPY) has a PE of 16.8x and dividend yield of 3.7%.

Advertisement

More From Market Realist