Every week in my Safety Net feature, I examine the dividend safety of a stock requested by a Wealthy Retirement reader. This week, I’m looking at Williams Partners LP (NYSE: WPZ), as suggested by Rollo M.

Williams Partners is a master limited partnership (MLP) that owns and operates about 14,000 miles of oil and gas pipelines.

The company has raised its cash distribution (MLPs pay distributions, not dividends) every year since the partnership was established in late 2005. In fact, Williams Partners has raised the distribution every quarter except for February 2009 through February 2010, due to the Great Recession.

[ad#Google Adsense 336×280-IA]Since it began raising the distribution again in 2010, the company has grown its payout at a compound annual rate of 9.7%.

This year, it raised the distribution by 9% and has told unitholders to expect another 6% increase in 2014 and 2015.

I love strong dividend growth like that.

It actually increases buying power in this sort of low interest rate environment.

It’s like working a job and getting a raise every year.

Show Me the Money
As I’ve said many times before, when I examine the safety of the dividend, I am more concerned with cash flow than earnings.

When it comes to MLPs, that’s even more important. MLPs report distributable cash flow (DCF). It’s a measure of cash flow that is available to be distributed back to unitholders.

Williams’ DCF grew by 20% in the third quarter. Year-to-date, it’s up over 16%. That’s exceptional growth.

However, while Williams’ DCF year-to-date is $1.262 billion, it has paid out $1.404 billion. That means its cash flow is covering only 90% of the distribution. Last year at this time, DCF made up 95% of the distribution. There are some extenuating circumstances this year that have caused this percentage drop.

In June, the company had an explosion at its plant in Geismar, La., which tragically killed two workers. The facility is expected to be out of service until April 2014, and Williams will incur about $102 million in costs to repair the plant. The company also may be required to pay fines as a result of the accident.

Second, the company has reported tighter margins in its natural gas processing, which will also affect cash flow.

That being said, management’s track record gives it the benefit of the doubt. The company’s guidance of a 6% distribution raise, which is lower than the 9% this year, tells me that management is acting prudently when it comes to managing the distribution.

The fact that the company has never cut its dividend and has raised it in 27 of the past 32 quarters (and for the past 15 consecutive quarters) also makes me confident that a dividend cut is extremely unlikely.

Additionally, DCF is forecast to grow by $1 billion (or 58%) over the next two years, which will be more than enough to pay the distribution that management told unitholders to expect.

With this kind of track record, I would normally give the stock my top rating for dividend safety. However, the fact that currently the distribution outpaces cash flow takes it down a notch.

That being said, you can be confident in Williams Partners’ ability to pay and raise the dividend over the next several years.

Dividend Safety Rating: B

— Marc Lichtenfeld

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Source: Wealthy Retirement