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Capital Projects Should Continue to Drive ONEOK’s Growth in 2017

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Capital projects

In the company’s 3Q16 earnings release, Terry K. Spencer, president and CEO of ONEOK (OKE), noted, “ONEOK continues to benefit from ONEOK Partners’ well-positioned assets and resulting volume growth from recently completed capital-growth projects.”

Spencer added, “The partnership recently completed several capital-growth projects including the Bear Creek natural gas processing plant in the Williston Basin and related NGL gathering infrastructure, and the second phase of the Roadrunner Gas Transmission pipeline and complementary ONEOK WesTex expansion project in the natural gas pipelines segment.”

Spencer stated, “All of these projects are expected to contribute primarily fee-based earnings and stable growth to the partnership as we exit 2016.”

ONEOK’s capital expenditures decreased in 3Q16 compared with 3Q15. This occurred as a result of  due to “projects placed in service in 2015 and proactive spending reductions in 2016 to align with customer needs.”

The above graph shows ONEOK’s cash flows available for dividends and total capital expenditures over the last three years. The right axis shows OKE’s per-share dividends.

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Cash flow available for dividends

ONEOK’s cash flow available for dividends fell from $173.0 million in 3Q15 to $167.8 million in 3Q16, resulting in slightly lower dividend coverage. ONEOK reported coverage of 1.3x in 3Q16.

OKE expects to generate cash flow for dividends of ~$675 million in 2016. It has provided a dividend coverage ratio guidance of ~1.3x for the year.

ONEOK’s dividends

On October 19, 2016, ONEOK (OKE) declared quarterly dividends of ~$0.62 per share for 3Q16, unchanged from the previous quarter. OKE’s dividends were flat in 1Q16 and 2Q16 as well.

In comparison, Enterprise Products Partners (EPD) and Tallgrass Energy Partners (TEP) increased their 3Q16 distributions 1.3% and 5%, respectively, compared to 2Q16.

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