Williams Partners (WPZ)
Current Price: $27.89
Price Target: $46.45
We have added shares of Williams Partners (WPZ) to the Blue Harbinger Income Equity portfolio. The price of WPZ continues to be extremely volatile as the market adjusts to oil price dynamics and management challenges at Williams. We took advantage of Friday’s price decline to add shares.
In a nutshell, Williams Partners (WPZ) is a high-yield (12.1%) Master Limited Partnership (MLP) that has declined more than 50% since the second half of 2014. A basic distribution discount model suggests the market has already priced in zero growth and a significant distribution cut. We believe the market has overreacted to the challenges Williams faces (e.g. low energy prices, counterparty credit/default risk, management reorganization, and rising interest rates), under-reacted to the value it creates (e.g. energy price agnostic fee business, the value of its assets, and its future growth potential). We believe it is a valuable addition to the higher risk portion of our diversified, Income Equity portfolio. You can read our full Williams Partners write-up here.
*One additional word of caution. Because Williams in an MLP it can trigger unexpected tax consequences. If held in an ordinary brokerage account you’ll likely get a K1 statement shortly after year end that will detail unrelated business taxable income that you’ll need to report on your tax return. Please contact your stock broker before holding this one in an Individual Retirement Account (IRA). If the position and income are too large it could cause your IRA to lose certain tax benefits.