Exceptional 4% Dividend-Yielder Stock Increases Payments Yet Again for Its Shareholders
Oneok, (OKE -0.34%), known for its rock-solid dividend record, has been a reliable source of income and growth for investors over the past quarter-century. While it hasn't boosted its dividend every single year, its total increase since 2000 is an impressive 1,230%.
Recently, the pipeline company upped the ante again, increasing its annualized dividend by 4%, pushing its yield to nearly 4%. But what's driving Oneok's impressive dividend growth, and will it be able to keep pumping out increases in the years ahead?
Crafting an Infrastructure Powerhouse
Oneok's success story begins with its extensive pipeline network. Stretching over 50,000 miles, its strategically located pipelines transport natural gas liquids (NGL), refined products, crude oil, and natural gas itself. The company also operates complementary midstream assets like natural gas process plants, NGL fractionators, and storage terminals. These assets generate resilient cash flow, supported by long-term contracts and regulated rate structures.
Over the years, Oneok has spent billions expanding its network through organic expansions and acquisitions. Key transactions include the $18.8 billion purchase of Magellan Midstream Partners in 2023 and, more recently, the $5.9 billion acquisition of Medallion Midstream and a 43% interest in EnLink Midstream. The deal to buy the remaining publicly held shares of EnLink is still pending.
Oneok's aggressive acquisition strategy isn't over yet. Last year, it invested heavily in high-return organic expansion projects, like its MB-6 fractionator and the full looping of its West Texas NGL Pipeline System. These investments have enabled Oneok to maintain strong earnings growth despite the turbulence in the energy markets.
Sustained Growth in the Pipeline
With its acquisitions and organic growth projects now largely complete, Oneok expects to produce more than $8 billion in adjusted EBITDA in 2025, representing a more than 20% increase from 2023. The company also identifies over $250 million in synergies from the EnLink and Medallion deals over the next three years. That's just the tip of the iceberg; it's leaving plenty of growth potential on the table.
Meanwhile, Oneok is working to capture more than $415 million in synergies related to its Magellan acquisition. To accelerate the integration of Magellan's system, it purchased 450 miles of NGL pipelines in the Gulf Coast for $280 million in 2023.
The pipeline company also has several more organic expansion projects underway, including a natural gas processing plant in the Permian Basin, an expanded refined products capacity, and a Medford Fractionator. These projects will enter service by the first quarter of 2027, providing an additional boost to its earnings.
A Durable Dividend Champion
Oneok's combination of consistent earnings growth and resilient cash flows has made it a reliable dividend stock. With its current yield of 4% and promising growth prospects, it's a tantalizing option for income-seeking investors. As long as the company can continue delivering growth and dividend increases, Oneok should continue its role as a pillar of the income-focused investor's portfolio.
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ONEOK's future growth prospects and dividend potential are bolstered by its strategic acquisitions, organic expansion projects, and robust financial performance. Prior investments in projects like the MB-6 fractionator and the West Texas NGL Pipeline System, as well as the recent acquisition of EnLink Midstream, have positioned ONEOK for continued growth and dividend increases. The company's financial strength, as reflected in its rising revenue growth and solid "GOOD" Financial Health score from InvestingPro, demonstrates its ability to create shareholder value through value-driven capital allocation strategies. With its diversified pipeline network and strategic acquisitions, ONEOK appears well-positioned to navigate the energy market and continue delivering dividend growth to its shareholders.
In light of its robust financial performance, Oneok has been actively investing money in high-return organic expansion projects, such as the MB-6 fractionator and the West Texas NGL Pipeline System, which have aided in maintaining its strong earnings growth despite market turbulence. Furthermore, the company's aggressive acquisition strategy, including the purchase of Magellan Midstream Partners and Medallion Midstream, has significantly contributed to its financial strength and dividend growth.
