We’ve long preferred general partners collecting distribution incentives over the affiliated MLPs paying them – such schemes clearly favor the tribute gatherers over the tribute payers over time.

So why would we recommend a partial sale of Williams (NYSE: WMB), as we have this month, only to turn around and recommend the purchase of its Williams Partners (NYSE: WPZ) vehicle?

After all, the Williamses share the attractive Northeast gathering footprint and the envy-inducing gas pipeline backbone capable to distributing that gas across the fast-growing Southeast on terms advantageous to the corporate parent in the long run.

Source: Williams investor presentation

The reason is that the growth option on these assets that WMB shares represent seems fully valued at this point in the wake of recent gains and amid continuing merger speculation. That’s especially true following the recent dividend cut, dictated by the cost of pending growth projects.

Williams Partners is not poised to capture the upside in the event someone launches a rich bid for its parent, and conversely is not at risk of disappointment if they don’t. And, in contrast with WMB, WPZ units provide a rich current yield — an annualized 9.2%, vs. 2.9% at WMB after the recent dividend cut and share price gains.

This current-income component of the Williams complex doesn’t seem overpriced in the least, especially in the wake of the recent announcements greatly mitigating the risk of a distribution reduction or credit downgrade.

As noted previously, with WMB yielding much less than WPZ once again, the rationale for having Williams buy out Williams Partners, as it intended to do before the Energy Transfer merger bid fiasco intervened, is as strong as ever – it would allow the combined entity to redirect more cash flows from distributions to limited partners into growth projects.

The rationale for owning WPZ here is that we get to reap a fully covered 9% yield from sought-after assets while waiting for a possible merger bid at a modest premium, as previously.

The partnership increased its cash flow nearly 10% in the first half of 2016 from a year earlier, boosted by the restart of its big olefin plant, resilient gathered volumes, higher transmission fees and cost savings. Distribution coverage improved to 1.02x year-to-date, up from 0.93x in the first half of 2015.

The dividend reinvestment plan that will have Williams taking its distribution incentives in stock rather than cash will allow Williams Partners to grow aggressively without jeopardizing its investment-grade credit rating.

We’re adding WPZ to the Growth Portfolio. Buy below $42.