Riding a wave of positive news that has buoyed its share price and improved the long-term outlook, Williams on Thursday reiterated its growing stability from high natural gas prices, which in turn has benefited all of its gas businesses and its rebounding power business.

In a morning “tutorial” on Williams’ power business, the management team explained the logic behind the board action on Wednesday, approving a regular dividend of 5 cents/share on common stock, payable Dec. 27, which effectively raised Williams’ dividend fivefold. Since 3Q2002, when it reduced its payout to conserve cash, Williams has been paying a 1 cent/share dividend.

“Our restructuring is nearly complete,” said CEO Steve Malcolm. “We’ve driven down our debt. We’ve increased our cash flow from operations. And we’ve made disciplined investments in our businesses. Raising the dividend is another sign of our financial progress. The board is confident in our cash flow and our ongoing ability to increase shareholder value while continuing to improve our credit ratings.”

Since its business faltered in 2002, Williams has reduced its debt by more than $6 billion through asset sales, restructuring and efficient management, he noted. Williams’ businesses also have produced net cash from operations of $770 million in 2003 and $1.1 billion for the first nine months of 2004.

“We continue to believe gas prices will remain strong for many years,” said CFO Don Chappel. Speaking to financial analysts during the Thursday webcast, Chappel said Williams’ three natural gas businesses were “performing better and better and the outlook is very bright.” And Williams’ outlook on cash flow for the power business has been “very good for several years.” The dividend, said Chappel, will continue to be looked at “from time to time, perhaps toward debt reduction. We want to make progress on the credit front, but at a slower pace.” He added, “We are comfortably covered by any scenario that we see.”

Alan Armstrong, senior vice president of Midstream Gathering & Processing, noted that Williams’ business strength is extending across the board, with its midstream business continuing to pick up. Bill Hobbs, senior vice president of Power, added that with rising gas prices, the power industry overall is rebounding, which in turn benefits Williams.

“People are buying assets, the spark spreads have stabilized,” said Hobbs. “A pro competitive environment is developing. We have a lot of work to do, a long way to go. But we are certainly seeing signs that everything is moving in the right direction.” Hobbs said that “from a commercial standpoint, we are totally focused on selling unhedged megawatts,” adding it was Williams’ “mission in life…, what we plan to do.”

Merrill Lynch analysts Sam Brothwell and Angela Ho said Williams’ decision to raise its dividend sends “a very positive message about the board’s confidence in the company’s turnaround and specifically the company’s free cash flow outlook. We’ve mentioned a dividend hike as a possibility, but saw it as a 2005 event.”

The analysts said they are “increasingly convinced” that the upside in the company’s exploration and production (E&P) business “is not being adequately reflected in the current share price” because of its acreage in the northern Rockies and long-range development potential in the Piceance Basin.

“Williams continues to click, and we remain very comfortable with our Buy rating,” they said. “Upside to our current $15.50 [potential share price] could come from greater reserve development potential in E&P, new opportunities in Midstream (including the anticipated master limited partnership rollout) and continued better-than-expected growth in the free cash flow story.” WMB shares were up more than 4% by 1:45 EST on Thursday to $14.89.

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