ONEOK: 6% Yield, 9% Dividend Growth, Third Quarter Earnings This Week (NYSE:OKE)


After cratering during the Covid 2020 crash, natural gas has seen a price spike over the past 2+ years. It rose to over $9.00 in August 2022, but has fallen to around $5.00 since then. Still, that’s much higher than it has been for many years:



ONEOK Inc. (New York stock market :okay) is one of the largest integrated players in the natural gas industry. It is involved in the gathering, processing, storage and transportation of natural gas in the United States. As one of the leading natural gas companies, it has benefited greatly from rising natural gas prices.

OKE has 3 segments – Natural Gas Gathering and Processing, Natural Gas Liquids – NGLs and Natural Gas Pipelines. The NGL segment is the largest, with around 60% of annual EBITDA, followed by gathering and processing at around 25% and pipelines at around 10%+.


OKE website

Segment volumes:

The NGL Segment saw overall raw food volume growth of approximately 4.5% in Q2 22 compared to Q1 22; and management expects average growth of around 2% to over 12% for the full year of 2022, with around 90% of its NGL revenue based on fees.


OKE website

OKE collection and processing segment has benefited from rapidly increasing efficiency over the past few years – it now only takes about 1/3 the number of connected wells to produce 3 times the volumes processed, with much higher gas to oil ratios in the Williston Basin. As of 06/30/22, OKE had 157 connected wells. Management plans to connect 375 to 425 wells in 2022.

ng muster

OKE website

okay Natural gas pipelines are directly connected to end-use markets – local gas utilities, power generation facilities and large industrial enterprises. This segment generally has more than 95% of its transport capacity under fixed price contract.


OKE website


The first quarter of 2022 saw continued strong revenue growth, with revenue up approximately 74%. Net income increased by 10.6%, while EBITDA increased by around 5% – softer growth rates than for the whole of 2021. Management has significantly increased expenditure on investment in Q1-2 22, after having reduced them by 68% in 2021 – the 72.5% increase in capital expenditure explains the 15.7% decline in DCF and the distribution coverage factor below 1X for Q1-2 22:


Hidden Dividend Stocks More

Looking back shows a good jump in ROIC in 2021 compared to 2017; and good EBITDA growth through different commodity price cycles since 2013:

ebitda history

OKE website


Management’s full-year 2022 guidance calls for median net income of $1,690 million, which would represent 6% growth over 2021. The midpoint of adjusted EBITDA of 3,620 million implies a growth of 7% in 2022.

Diluted EPS guidance of $3.45 to $4.07 calls for a wide growth range of 2.7% to 21% over 2021. Q1-2 22 EPS was $1.79, so OKE needs to generate $1.66 – $2.28 EPS in H2 2022 in order to achieve management guidance figures for full year 2022:


OKE website


At its 10/28/22 intraday price of $58.34, OKE was down 6.41%. Its leakage coverage factor is 1.02X, due to higher Capex. It becomes ex-dividend on Monday 10/31/22, then should become ex-dividend on 01/28/23.


Hidden Dividend Stocks More

At 8.92%, OKE has one of the best 5-year dividend growth rates in the midstream industry, with over 25 record highs of no dividend cut.

division history

OKE website

Profitability and leverage:

Both OKE’s ROA and ROE have improved significantly from pre-Covid numbers, both well above industry averages. EBITDA margin decreased as EBITDA growth has lagged revenue growth for the past 6 quarters.

Net debt/EBITDA improved somewhat, as did interest coverage.


Hidden Dividend Stocks More

Debt & Liquidity:

OKE has a $2.5 billion credit agreement, which expires in June 2027. It also has access to $1.0 billion, through its “in-the-market” ATM equity program.

As of June 30, 2022, OKE had no borrowings under its $2.5 billion credit agreement and had $135.8 million in cash and cash equivalents.

In July 2022, management redeemed the remaining $895.8 million of its $900 million 3.375% Senior Notes due October 2022 at 100% of principal amount, plus accrued and unpaid interest, with the cash and short-term borrowings. As of July 31, 2022, OKE had $860 million in short-term borrowings outstanding.

OKE’s debt has an investment grade credit rating of BBB-/Baa3.


At 1.22X, OKE’s P/Sales is its deepest undervaluation relative to industry averages, while its P/Book of 4.28X is also below average. It has an above average dividend yield and EV/EBITDA. While there is no compensation for P/DCF, 15.37X does not look cheap, compared to valuations we have seen in the past.


Hidden Dividend Stocks More

Analyst price targets:

At its 10/28/22 intraday price of $58.34, OKE is 6% above analysts’ low price target of $55.00 and around 13% below the target of average price of $67.00.


Hidden Dividend Stocks More


Although mostly lagging the midstream industry and broader energy sector, OKE has outperformed the S&P 500 in the month, quarter, year and so far in 2022. Its 1-year total return is around -9.68%, compared to -14.66% for the S&P.


Hidden Dividend Stocks More

Parting Thoughts

OKE will release its Q3 22 results after market close on November 1, 2022. Given the current environment, you may want to wait for this report. OKE is a well-run company with a good long-term balance sheet – we advise waiting for the next market panic before jumping on board.

If you’re interested in other high-performance vehicles, we’ve got them covered every Friday and Sunday in our items. All charts are provided by Hidden Dividend Stocks Plus unless otherwise stated.

Comments are closed.