We recently compiled a list of the 13 Best Natural Gas and Oil Dividend Stocks To Buy. Since The Williams Companies, Inc. (NYSE:WMB) is part of our list, we have analyzed the stock in detail.

Energy stocks can be hot and cold, ranging from periods of strong performance to periods of relative stagnation. These stocks attract attention from investors, particularly when oil prices surge or geopolitical tension escalates, leading to increased volatility and heightened trading activity. This is what we have seen thus far this year. Energy stocks performed well in the first four months of 2024 because of increasing oil prices. However, when oil prices began to decline in May, energy stocks also fell. The energy sector is up by nearly 7% this year so far but experienced a roughly 4% drop in the past month. As of June 7, oil prices reported their third consecutive week of decline. Investors balanced OPEC+ reassurances with recent US jobs data, which reduced the likelihood of the Federal Reserve lowering interest rates in the near future. The jobs report suggested that interest rates would remain high for an extended period, which usually reduces optimism in the oil market.

While the performance of energy stocks is influenced by oil prices to some extent, the earnings of oil refiners, storage, and transportation companies are not directly dependent on these prices, according to Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. One of the main reasons for this is that these companies mainly operate on fixed margins or fee-based structures rather than being closely linked with fluctuating prices. Here are some other comments from the analyst:

“Many exploration and production companies have productive oil wells and should be able to generate solid profit margins. Since these companies tend to return capital to shareholders in the form of dividend payouts, their stocks represent an opportunity for income-orientated investors.”

Although energy stocks experienced a rally in the initial months of the year, their behavior seems to align with past patterns, as predicted by analysts. Walter Todd, chief investment officer at Greenwood Capital Associates, said that the historical trend observed in energy stocks resembles a boom-and-bust cycle: when oil prices surge, these stocks also rise, but subsequently, a supply response triggers price declines and causes these stocks to fall. That said, US oil companies are showing greater capital discipline, resulting in higher returns and lower valuations compared to the other sectors in the market.

Though oil dominates the energy market as the largest player, natural gas also holds significant importance and plays a crucial role. It serves various purposes, including power generation, heating commercial and residential buildings, and supporting industrial activities. In addition, it is relatively inexpensive compared to other fossil fuels. Its distinctive attributes have led to an expectation of continued growth in its demand. According to a report by the International Energy Agency, global gas demand is set to increase by 2.5% in 2024, equivalent to 100 billion cubic meters (bcm). The report further mentioned that the steep decline in natural gas prices after the record highs of 2022 is contributing to the rebound in gas demand.

Many oil and gas stocks provide attractive yields, making them appealing to investors who prefer high-dividend stocks.

Our Methodology:

For this list, we first scanned Insider Monkey’s database of 920 hedge funds, as of the first quarter of 2024. Our focus was on selecting gas and oil companies that are involved in the exploration, production, transportation, or distribution of oil and gas. From this pool of companies, we identified 13 companies that prioritize distributing dividends to their shareholders and ranked them in ascending order of the number of hedge funds having stakes in them at the end of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

The Williams Companies, Inc. (NYSE:WMB)

Number of Hedge Fund Holders: 26

The Williams Companies, Inc. (NYSE:WMB) is an Oklahoma-based petroleum business company that specializes in natural gas transportation and processing. On April 30, the company declared a quarterly dividend of $0.475 per share, which was in line with its previous dividend. Overall, it has been growing its dividends for eight consecutive years, which makes WMB one of the best dividend stocks from the oil and natural gas sector. The stock has a dividend yield of 4.67%, as of June 10.

In the first quarter of 2024, the company announced that its business is consistently exceeding expectations, with effective management of profitable acquisitions and organic growth leading to immediate gains. During the quarter, the company acquired six storage facilities with a combined capacity of 115 Bcf in Louisiana and Mississippi. These facilities are strategically positioned to meet the increasing demand for LNG exports and power generation. The Williams Companies, Inc. (NYSE:WMB) reported a strong cash position in the first quarter with an operating cash flow of $1.23 billion while its dividend coverage ratio clocked in at 2.6x. Its adjusted EBITDA also grew by $139 million over the past year due to its expansion projects and acquisitions. For FY24, the company expects its adjusted EBITDA to be in the upper half of its guidance range, which is between $6.8 billion and $7.1 billion. This outlook was attributed to increased natural gas demand, especially due to rising LNG export activity and significant growth in power demand from data centers.

The Williams Companies, Inc. (NYSE:WMB) has not attracted much attention from investors as it is not as big as some of its competitors in the energy midstream sector. However, the company’s dividend growth is solid and it has a significant potential to grow its payouts in the future, which offers a reliable investment opportunity for income investors. In addition, its cash generation has remained strong over the years, which has allowed it to strengthen its balance sheet further. In fact, in the most recent quarter, the company produced enough cash to cover its dividend 2.6 times. The stock has a forward P/E of 21.88 and has gained over 14.5% since the start of the year. We believe that the company is well-positioned to benefit from its expansion projects, multiple acquisitions, and growing natural gas demand.

At the end of Q1 2024, 36 hedge funds tracked by Insider Monkey reported having stakes in The Williams Companies, Inc. (NYSE:WMB), down from 46 in the previous quarter. These stakes are collectively valued at over $455.7 million. Ken Griffin’s Citadel Investment Group was the company’s leading stakeholder and remained bullish on the stock during the quarter, growing its stake by 266%.

Overall, WMB ranks 13th among the best natural gas and oil dividend stocks. You can visit 13 Best Natural Gas and Oil Dividend Stocks To Buy to see other dividend stocks from the natural gas and oil sectors. While we acknowledge the potential of dividend stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Read Next: Michael Burry Is Selling These Stocks and Jim Cramer is Recommending These Stocks.

Disclosure: None. This article is originally published at Insider Monkey.