Williams Cos To Buy Access Midstream Partners LP; To Increase Dividend By 30% Later This Year

Updates

June 11, 2015: Hess and Global Infrastructure Partners to form joint venture, also. See their website here.

June 20, 2014: The Market Realist explains the deal. 
 

Original Post

I thought I read this earlier and even thought I might had posted but I can't it, so I must be dreaming. A reader sent me this, thank you. Bloomberg is reporting:

Williams the fourth-largest U.S. pipeline company, agreed to buy control of Access Midstream Partners LP for about $6 billion in a step toward becoming a pure holding company.

The purchase for $5.995 billion cash from Global Infrastructure Partners II will increase William’s ownership to 100 percent of the general partnership and 50 percent of the limited partnership, Williams said in a statement today.

Following that, Williams will propose that it and Access merge into a master limited partnership named Williams Partners LP, which would have 2015 adjusted earnings before interest, taxes, depreciation and amortization of about $5 billion.

Access, with a market capitalization of about $13.2 billion, provides oil and natural gas gathering services to Chesapeake Energy Corp., Anadarko Petroleum Corp. and other major exploration companies, according to its 2013 annual report. Its shares are up about 16 percent this year. 

But this is what caught my attention:

Williams said it will increase its third-quarter dividend by 32 percent to 56 cents a share once the transaction closes.

After seeing that I sent this note to the reader who sent me the story:

In my meandering post on DNR, I was trying to point out that "dividends are the new game in town."

A few months ago, what was probably obvious to everyone else, was starting to become clear to me. It was an "aha" moment.

Seniors on a fixed income, experienced investors, older investors, all of us are getting frustrated that savings accounts, money market funds, etc., are not providing any income. Investors interested in income are looking elsewhere.

Because of renewable energy and the war-on-coal some analysts warn folks to stay from historic income-oriented stocks, the utilities.

In response, folks are turning to other sectors for income. And in turn, the capital-intensive companies are issuing bonds to fill the gap. Money is cheap, so the issuers do well, and investors are happy.

But these companies are now competing for investors, and that's why I think we are seeing (some) companies initiate and increase dividends.

I had forgotten or was unaware that WMB was increasing its dividend by 32% -- that's not trivial. Supports the point I was going to make when I started posting about DNR -- a company that has never paid a dividend, not initiates a dividend and will double it the following year.

Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read here or think you may have read here. 

Somewhat related: it appears that, for investors (not traders), this might be the decade for large caps, as opposed to small- or mid-caps. The large caps have huge amounts cash (Apple, one case in point) and will be returning cash to their investors. At least that's that talk among some.

It's going to be an interesting decade.  

[I'm not dreaming. I did see this story on Friday but did not post it. At that time Bloomberg said the deal was for $3 billion, not $6 billion. Maybe I'm misreading the two stories. Whatever.]

WMB currently pays $1.70 (3.60%).

$1.70 * 1.32 = $2.24/share (annual), or at current share price, $2.24 / $47 = 4.8%.