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ONEOK Trades at a Forward Yield Higher Than 12%

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ONEOK’s forward dividend yield

ONEOK (OKE) currently trades at a forward dividend yield of 12.6%. This is much higher than its five-year average dividend yield of 4.6%. The rise in ONEOK’s yield since mid-2015 is in line with the broader midstream energy sector.

ONEOK’s stock price has fallen from $26.99 on December 2, 2015, to $20.31 on December 11, following the slide in crude oil prices. This pushed its forward yield up from 9.5% on December 2 to 12.6% on December 11. The forward dividend yield of a company is calculated by dividing its estimated one-year future dividend per unit by its market price per unit.

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The above graph compares OKE’s historical dividend yields to its five-year average. OKE’s high leverage combined with a sustained low commodity price environment contributes to its higher forward yields. ONEOK forms 0.9% of the WisdomTree Dividend ex-Financials ETF (DTN). The ETF invests in high-dividend-yielding companies outside the financial sector.

OKE’s EV-EBITDA multiple

ONEOK’s forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 10.4 is lower than its historical average of 13.2. The enterprise value of a company is roughly the market value of its debt and equity less its cash holdings. The EV-EBITDA ratio is neutral to capital structure, as it takes into account a company’s debt and equity. A lower ratio may indicate a possible undervaluation.

ONEOK’s forward EV-EBITDA multiple is also lower than its trailing 12-month EV-EBITDA multiple of 12.1. This indicates expectations of EBITDA growth in the fourth quarter of 2015.

Enterprise Products Partners (EPD), Enbridge Energy Partners (EEP), Enable Midstream Partners (ENBL), and Spectra Energy (SE) are some other companies with midstream operations. In the next part, we’ll compare ONEOK’s forward yield and EV-EBITDA multiple with its peers.

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