Should Investors Buy ONEOK Inc. for Dividend Growth?

Should Investors Buy ONEOK Inc. (NYSE: OKE) for Dividend Growth?

If you're looking for a company that's not as susceptible to the volatility of oil prices, you may have found your match with ONEOK Inc (NYSE: OKE). ONEOK is a natural gas gatherer, processor and also stores and transports natural gas. 

Let's take a quick look at the history and present of ONEOK Inc. and the benefits and drawbacks of adding ONEOK stock to your portfolio. By the time you're done reading, you may have a better idea of how (and if) ONEOK should fit into your portfolio. Keep in mind that Doing your own research can help you decide whether to invest ONEOK Inc. and it can also help you determine whether you're on the hunt for the right dividend stock returns to meet your goals. 

About ONEOK Inc. 

ONEOK Inc. was originally created in 1906 as the Oklahoma Natural Gas Company and switched to the ONEOK name in December 1980. 

In 1996, Oneok acquired Western Resources, headquartered in Kansas and acquired Southern Union Gas in 2003, which became Texas Gas service. In 2005, it acquired Koch Industries. Oneok spun off its natural gas companies and created a publicly traded company called ONE Gas in 2014.

Today, ONEOK Inc. gathers, processes, stores and transports natural gas in the United States in the mid-continent and Rocky Mountain regions. 

The company:

  • Gathers and transports natural gas liquids (NGL) from its pipelines across the South, West and Midwest. 
  • Has storage facilities in Kansas, Missouri, Nebraska, Iowa and Illinois
  • Has NGL distribution and refined petroleum products pipelines across the Midwest
  • Owns and operates truck and rail loading and unloading facilities 
  • Operates regulated interstate and intrastate natural gas transmission pipelines and natural gas storage facilities. 

Overall, the company has a maze of natural gas pipelines, including the following:

  • 17,500 miles of natural gas gathering pipelines
  • 1,500 miles of FERC-regulated interstate natural gas pipelines
  • 5,100 miles of state-regulated intrastate transmission pipeline
  • Six NGL storage facilities
  • Eight NGL product terminals

The Tulsa, Oklahoma-based company serves the following types of companies: 

  • Integrated and independent exploration and production 
  • NGL and natural gas gathering and processing 
  • Crude oil and natural gas production companies
  • Propane distributors
  • Municipalities
  • Ethanol producers
  • Petrochemical, refining and NGL marketing companies
  • Natural gas distribution and electric generation companies

Pros and Cons of ONEOK Inc. Stock

Let's walk through the pros and cons of owning ONEOK Inc., starting with the benefits: 

Pros: 

  • Projected earnings: The company's EPS (a company's net profit divided by the number of outstanding common shares the company has) continually keeps trending upward. In the last three years, ONEOK increased its EPS by 4.3% per year and by 24% in Q1 2022. A trend upward could signify greater company value because investors will pay more if they think the company offers higher profits relative to share price.
  • Growing profits: ONEOK has shown 78% cash flow growth compared to many of its peers' flatter cash flow growth trajectories. Net income increased to $391.2 million in Q1 2022, reflecting a 17% increase in total NGL raw feed throughput volumes, a 24% increase in Rocky Mountain region NGL raw feed throughput volumes and an 11% increase in Rocky Mountain region natural gas volumes processed. 
  • High dividend yield: With a 6.44% dividend yield and no end in sight for gas increases, it's a good sign for investing in the company. ONEOK paid the same dividend in 2021 compared to in 2020, marking the end of a dividend-increase era. It's important to remember that the company has not cut its dividend in 25 years, however, which illustrates its commitments to its shareholders. 

Cons:

Now, the downsides of adding ONEOK Inc. to your list:

  • Possible too-high dividends: ONEOK pays an annual dividend of $3.74 per share with a dividend yield of 6.44%, which means it pays out 111% of its earnings in the form of a dividend, which suggests that it may not have enough earnings to cover its current dividend payment in the future. Its dividend may not be well covered by earnings or projected to be so over the next few years.
  • Debt: ONEOK has a debt to EBITDA ratio of 4.3. The company has large levels of debt and the company does leverage a high amount of debt to increase returns. It's a good idea to think about how the company might be able to achieve its goals if it wasn't the case. However, it's important to know that certain experts and investors may not see these debt levels as terribly problematic.

Does ONEOK Inc. Count as a Quality Dividend Stock?

When you're on the hunt for a lucrative dividend growth strategy, you may want to consider adding ONEOK Inc. to a comprehensive, diversified portfolio. Diversification means that you put together a large number of investments within your portfolio. Even if you invest in what you think of as one "low risk" company, your returns may look quite different compared to if you were to invest in a wide variety of investments. A lack of diversification puts your portfolio at risk for significant volatility. Putting all your eggs in one basket can mean that you lose out and even lose all your money, even if you invested in what you perceived as a “good” company. It's a good reminder for all investors, regardless of experience.

In other words, you want to consider more than just strong dividends as part of your stock investing portfolio. As long as you do your own research and as long as you know for sure that investing for dividend growth fits into your goals and investment objectives, it's a great starting point.

A financial advisor may help you decide whether dividend stocks make the most sense for you. A fiduciary can help you decide what types of investments you should consider based on your goals and time horizon.

Learn more: How Many Dividend Stocks Should I Own? and Dividend Stocks for Retirement: Can You Live Off Dividends in Your Golden Years?

Companies Mentioned in This Article:

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
ONEOK (OKE)$51.24-1.4%7.30%14.56Hold$68.64

Find out why slow and steady wins the race with DividendStocks.com.