Midstream oil and gas stocks offer dividends to reward investors for their patience when demand for oil and natural gas is waning due to slowing growth. Some of them also have a strong track record of resilience in various economic and market conditions, including Williams Companies Inc. (WMB), notes Paul Dykewicz, editor of DividendInvestor.
WMB is a Tulsa-based natural gas processing and transportation company that also has petroleum and electricity generation assets. It recently received a “Buy” recommendation and a $45 price target from Citigroup, based on the investment firm’s 20-year net present value (NPV), implying an 11.1x enterprise value (EV)/EBITDA multiple on 2025 estimates. The investment firm’s NPV method assumes a 10% discount rate.
Plus, Williams reported Q2 2024 EBITDA of $1,667 million, above Citigroup's estimate of $1,617 million and the Street's mean consensus estimate of $1,641 million. Higher-than-expected transmission and upstream results helped to produce the outperformance. WMB also optimized its portfolio by buying and selling assets of similar amounts, with the net result of lower commodity volatility.
Potential risks for investors include dramatically lower natural gas prices and extreme cuts in rig counts, Citigroup cautioned. However, the investment firm issued a recent research report indicating that the company's upbeat outlook for 2024 and 2025 remains intact.
Williams has a track record of beating earnings three quarters in a row and is expanding. It acquired six storage facilities recently in Louisiana and Mississippi to meet increased demand for liquid natural gas (LNG) exports and power generation.
Recommended Action: Buy WMB.
