Now that Williams Companies (WMB, $28.00) has spun off WPX Energy Inc. (WPX), let's take a look at Williams to assess its value as a growth and income stock.
Williams Companies owns and operates interstate gas pipelines, runs a large-scale Midstream Canada & Olefins business, owns a substantial portion of Williams Partners L.P. (WPZ), and operates from the Gulf of Mexico to Canada. Olefins are organic chemicals suchs as ethylene and propene. The midstream business processes, stores, transports and markets natural gas and natural gas liquids (NGLs).
In Williams Completes Separation of E&P Business, MarketWatch.com, Jan. 3, 2012, we learn, "Williams' interstate gas pipeline and domestic midstream interests are largely held through its significant investment in Williams Partners L.P. [WPZ], one of the largest energy master limited partnerships. Williams owns the general-partner interest and a 73-percent limited-partner interest in Williams Partners." Williams Companies' (WMB) substantial income from Williams Partners L.P. (WPZ) is passed to WMB shareholders in the form of dividends. As WPZ grows and earns more money, much of that increased income is also passed on to WMB shareholders.
"We forecast strong dividend growth over the next several years. Assuming WMB adopts an 80-90% payout ratio (with respect to free cash flow), we forecast 22% y/y dividend growth in 2012 ($1.04/share), 15% in 2013 ($1.19/sh) and 10% ($1.31/sh) in 2014." -- Morgan Stanley Research, Jan. 5, 2012. WMB's most recent dividend of $1.00 per share gives the stock a current yield of 3.57%