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Will ONEOK’s Capital Projects Drive Growth in 2017?

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Apr. 26 2017, Updated 9:08 a.m. ET

Capital expenditures

ONEOK (OKE) expects its 2017 capital expenditures to be in the range of $520 million–$640 million. The mid-point of this guidance is lower than $625 million that OKE spent on capital projects in 2016.

Relating to the impact of reduced capital spending on capturing increase in volumes, Terry K. Spencer, president and chief executive officer of ONEOK, said in the company’s 4Q16 earnings release, “Looking ahead to the remainder of 2017, we are well-positioned to capture future increases in NGL transportation and fractionation volumes due to increased demand from the petrochemical industry and NGL export activity without significant capital spending.”

As the graph above shows, ONEOK’s capital expenditures fell in 2016 compared to 2015 due to projects placed in service in 2016 and “proactive spending reductions in 2016 to align with customer needs.”

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Cash flow available for dividends

ONEOK’s cash flow available for dividends rose marginally from $166.6 million in 4Q15 to $171.1 million in 4Q16, resulting in slightly higher dividend coverage from 1.29x in 4Q15 to 1.32x in 4Q16.

As per OKE’s 2017 guidance, the company expects to generate cash flow available for dividends of ~$1,245 million–$1,505 million for the whole year. ONEOK has provided dividend coverage ratio guidance higher than 1.2x for 2017.

ONEOK’s dividends

On April 20, 2017, ONEOK declared quarterly dividends of ~$0.615 per share for 1Q17, unchanged from the previous quarter. ONEOK expects a dividend rise of 21% for the first dividend following the close of ONEOK Partners’ (OKS) acquisition. It expects an annual dividend growth of 9% to 11% after that through 2021.

In comparison, Enterprise Products Partners (EPD) announced a 1.2% increase in its 1Q17 per-unit distribution over the previous quarter.

ONEOK is currently trading at a yield of ~4.6%. In comparison, the Alerian MLP ETF (AMLP) is trading at a yield higher than 7% while the SPDR S&P 500 ETF (SPY) currently yields nearly 2%. The energy sector forms nearly 6.6% of the S&P 500 Index (SPX-INDEX).

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