This year, ONEOK (OKE) stock has risen roughly 32%, while peers Kinder Morgan (KMI) and Williams Companies (WMB) are up 26% and 3%, respectively. MLP peer Enterprise Products Partners (EPD) has risen around 7% over the same timeframe. Both Kinder Morgan and ONEOK have outperformed the S&P 500 this year. Let’s look at what’s behind ONEOK’s impressive performance.
ONEOK’s stable cash flow
ONEOK primarily provides natural gas and NGL (natural gas liquid) gathering, processing, fractionation, and transportation services. The company’s diversified operations and fee-based contracts provide it with cash flow stability, which supports its dividend growth. Last year, 87% of ONEOK’s earnings were fee-based, around 8% were differential-based, and only 5% were commodity-based.
Next year, ONEOK expects its adjusted EBITDA to grow 20%, boosted by the company’s strong Permian Basin activity and growth projects.
One of ONEOK’s key advantages is its strategically located assets. The company’s assets are in the Williston, Permian, and Powder River basins, and STACK (Sooner Trend, Anadarko, Canadian, and Kingfisher) and SCOOP (South Central Oklahoma Oil Province) areas. ONEOK is a major NGL takeaway provider in the midcontinent and Williston and Powder River basins. It’s also a top natural gas processor in the Williston Basin.
ONEOK’s assets provide connectivity between NGL market centers in Conway and Mont Belvieu. Moreover, the company’s assets are integrated, from the gathering of natural gas and NGLs, to their processing, fractionation, and transportation to markets.
ONEOK stock’s yield
OKE stock currently offers an attractive yield of 5.1%. That makes it one of the only 26 stocks in the S&P 500 offering a yield greater than 5%. Its dividend coverage ratio last year was 1.37x. The company aims to keep a long-term dividend coverage of at least 1.2x. Therefore, its yield is both attractive and backed by steady cash flow.
ONEOK has around $4.5 billion in growth projects expected to be completed by the end of Q1 2020. These include its Elk Creek Pipeline, Demicks Lake Plant, MB-4 fractionator, and Arbuckle II pipeline.
ONEOK’s C corp structure, conservative leverage, and investment-grade credit ratings are some other factors that make its stock attractive.
For more on other top dividend stocks, read 5 Dividend Stocks for an Uncertain Market. To learn about analysts’ views, refer to Top Midstream Energy Stocks: What Analysts Got Wrong.