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ONEOK’s Dividend Growth in 2Q17 and Beyond

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Jul. 26 2017, Published 6:44 a.m. ET

Cash flow available for dividends

ONEOK’s (OKE) cash flow available for dividends fell 3% from $169.3 million in 1Q16 to $164.2 million in 1Q17. According to ONEOK’s 2017 guidance, the company expects to generate cash flow available for dividends of ~$1,245 million–$1,505 million in 2017. The mid-point of this guidance range is nearly double ONEOK’s 2016 cash flow available for dividends of $680 million. ONEOK’s acquisition of ONEOK Partners will contribute to the expected growth.

The above graph shows trends in ONEOK’s cash flow available for dividends, capital expenditures, and per share dividend over the last three years.

ONEOK’s dividend coverage ratio was 1.27x in 1Q17. It has provided a dividend coverage ratio guidance of higher than 1.2x for 2017.

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ONEOK’s dividends

ONEOK expected a dividend increase of 21% for the first dividend following the close of ONEOK Partners’ acquisition. ONEOK expects annual dividend growth of 9%–11% through 2021.

The company announced the closing of ONEOK Partners’ acquisition on June 30, 2017. So, its 3Q17 dividend should be 21% higher than 2Q17. The company hasn’t announced a 2Q17 dividend.

In comparison, Enterprise Products Partners (EPD) announced a 1.2% increase in its 2Q17 per unit distribution compared to the previous quarter.

Currently, ONEOK is trading at a dividend yield of ~4.5%. In comparison, the Alerian MLP ETF (AMLP) is trading at a yield higher than 7%, while the SPDR S&P 500 ETF (SPY) yields nearly 2%. The energy sector forms nearly 6.6% of the S&P 500 Index (SPX-INDEX).

In the next part, we’ll discuss the recent changes in institutional investors’ ownership of ONEOK.

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