Forget Energy Transfer stock: Williams is firing on all cylinders

Energy Transfer (ET) stock and total returns have done well in the past few years as investors have chased its strong dividends and as its revenue and profitability-growth has remained steady. 

Its total return in the past five years stood at 95%, slightly lower than the SPDR S&P 500 (SPY) fund that has returned 113%.

Energy Transfer – and Enterprise Energy Partners – are the best-known and most talked about Master Limited Partnership (MLP). However, The Williams Companies (WMB) is another one that you should look at. 

While it has a lower dividend yield of 4.50% vs ET’s 7.9%, it has a long history of outperformance and the trend may continue. 

A top MLP player

The Williams Companies is one of the top players in the MLP space with a market cap of over $55 billion. 

Like Energy Transfer, it is a mission-critical infrastructure company that provides energy solutions in the United States. It does this by offering natural gas gathering, processing, and transmission. 

It has also become a major player in the fractionionation, a process where natural gas is separated into its individual components. It is an important process that lets natural gas be seaparted into products like methane, butane, and propane.

As an MLP, Williams is not well-known by retail customers. It is, however, a well-known brand in the energy sector, where it serves over 700 customers. It owns over 33,000 miles of pipelines.

Generally, Williams, and other MLPs tend to be a bit cyclical. In Williams case, its revenue jumped to over $11.3 billion in 2022 and then dipped to $9.9 billion in 2023. Its revenue in the trailing twelve months (TTM) was over $10.2 billion.

What is notable, however, is that the company’s profit growth has been relatively steady in the past few years. Its net income rose from $850 million in 2019 to over $3.17 billion in 2023, helped by its improved efficiencies.

The management hopes that its revenue growth will continue doing well, helped by the acquisitions of the Gulf Coast Storage and DJ Basin acquisitions.

Gas demand to continue

A key difference between Energy Transfer and Williams Companies is that the later mostly focuses on natural gas. Energy Transfer is more diversified with both natural gas and oil assets. 

As such, Williams Companies has been in the spotlight now that natural gas prices have tumbled. Data on TradingView shows that gas has crashed by over 40% from its highest point in 2023. In its 10k report, the company has mentioned that commodity prices is a big risk, noting:

“Price volatility has and could continue to impact both the amount we receive for our products and services and the volume of products and services we sell. Prices affect the amount of cash flow available for capital expenditures and our ability to borrow money or raise additional capital.”

Indeed, this is happening, as evidenced by its recent results, which showed that its revenues rose marginally to $2.46 billion from $2.36 billion a year earlier. its  net income fell from $460 million to $401 million.

In the long-term, however, prices are expected to bounce back because of the rising demand for natural gas, a commodity that is 45% cleaner than coal, cheaper, and also reliable than solar and wind. 

The company will also continue benefiting from the rising demand for US LNG, especially from Europe, a continent that has long-depended on Asia. This is notable since its Transaco pipeline remains in the best US LNG export corridor

Williams stock is better than Energy Transfer

To be clear: I love Energy Transfer, as I have written severally, including here and here. However, I think that Williams is a better investment for now, which is evidenced by its performance. 

That’s mostly because of its performance in the last few years. As shown above, Williams stock has jumped by over 169% in the last five years while Energy Transfer has jumped by 94%.

The same trend has happened this year as Williams stock has risen by 33% while Energy Transfer has jumped by 24.50%.

Additionally, Williams has a strong momentum. As shown on the chart below, the stock has surged and reached a record high. On the weekly, it has remained above all moving averages while the Average Directional Index (ADX) has soared to 42. An ADX figure of 25 is always a good thing for a stock. 

The Relative Strength Index (RSI) and other oscillators have moved to the overbought levels. The stock is also relatively overvalued on other metrics. Therefore, while a pullback may happen, I expect that the stock will continue doing well and beating Energy Transfer for a long time.