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OKE’s Dividends: Key Drivers

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What drove revenue?

ONEOK (OKE) is involved in the gathering, processing, storage, and transportation of natural gas in the United States. Its revenue grew 15% and 34% in 2016 and 9M17, respectively. Commodity sales and services drove revenue in both periods. Natural Gas Gathering and Processing, Natural Gas Liquids and Natural Gas Pipelines drove growth in both periods. Natural gas and natural gas liquids (or NGL) volume growth in the Williston Basin and STACK and SCOOP areas, higher average fees in the natural gas gathering and processing segment, and higher fee-based transportation services in the natural gas pipelines segment drove the 9M17 results.

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Why did EPS fall?

The cost of sales and fuel rose 15% and 44% in 2016 and 9M17, respectively. As a result, gross profit grew 14% and 7% in 2016 and 9M17, respectively. Operating expenses increased 1% and 12% in 2016 and 9M17, respectively. An asset impairment was recorded in 9M17. The gain on the sale of assets decreased in 9M17. As a result, operating income grew 29% and 3% in 2016 and 9M17, respectively. The company reported other income during the periods. Interest expenses increased 13% and 2% in 2016 and 9M17, respectively. This rise led to 44% and 24% growth in adjusted earnings for 2016 and 9M17, respectively. This growth, offset by higher outstanding shares, translated into 43% growth in EPS for 2016 and a 2% fall in 9M17.

Dividend yield and price performance

The divided yield dropped substantially in 2016 before recovering a bit in 2017 due to slight growth in dividends, offset by substantial price gains in 2016. 2017 noted a higher dividend growth and price loss. The company just managed to generate enough free cash flow in 2016 to pay off its dividends.

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Drivers

The company’s capital growth projects and extension plans for the West Texas LPG Pipeline system could strengthen its position.

Stacking up against the broad indexes

A PE (price-to-earnings ratio) of 35.8x and a dividend yield of 5.2% compare to a sector average PE and dividend yield of 775.2x and 6.7%, respectively. The SPDR S&P 500 ETF (SPY) has a PE of 18.7x and a dividend yield of 1.7%. The SPDR Dow Jones Industrial Average ETF (DIA) has a PE of 17.8x and a dividend yield of 1.9%.

Dividend ETFs with exposure to ONEOK

The PowerShares High Yield Equity Dividend Achievers (PEY) has a PE of 18.7x and a dividend yield of 3%. The Global X SuperDividend ETF (SDIV) has a PE of 11.6x and a dividend yield of 6.5%.

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