ONEOK Entices Investors With 3.3% Quarterly Dividend Hike

ONEOK, Inc. (NYSE:OKE) announced a 3.3% hike in its quarterly dividend to 77 cents per share from the prior quarterly dividend of 74.5 cents. The company’s new annualized equivalent dividend rate is $3.08 per share up from the prior annualized level of $2.98 per share.

The new quarterly dividend will be payable on Feb 14 to shareholders of record at the close of business on Jan 29. Based on yesterday's closing price of $59.42, ONEOK’s dividend yield comes at 5.18%, better than the industry average of 2.84%.

ONEOK’s Long-term Goals

With long-term value creation in mind, the company has taken consistent steps to enhance balance sheet strength. ONEOK’s proactive approach to lower debt levels will strengthen financial health and boost performance. Notably as of Sep 30, 2017, the company further lowered debt level by nearly $1 billion.

ONEOK has increased dividend by 25% since the close of the ONEOK and ONEOK Partners merger transaction in June 2017. It had announced a dividend increase to 74.5 cents per share in the first quarter following the close of the transaction, a 21% increase compared with the fourth quarter of 2016. As previously announced, the company also anticipates growing annual dividend by approximately 9-11% through 2021.

Dividend Hike Usual with Utilities

The demand for utility services is generally immune to fluctuations of the economic cycle especially as they provide basic services like gas, electricity, and water. Consequently, the stocks in this space are regarded as safe-havens and enjoy a steady flow of revenues and cash flows.

As a result of this, these stocks tend to generate consistent profits and reward shareholders with high dividends and ONEOK is no exception. In this line, another utility, ONE Gas, Inc. (NYSE:OGS) has also raised quarterly dividend by 4 cents per share to 46 cents per share, effective for the first quarter of 2018, resulting in an annualized dividend of $1.84 per share. Notably, this utility has also provided investors with long-term guidance. (Read more: ONE Gas Updates Investors with Near & Long-Term Guidance)

How Will ONEOK Gain?

The company is currently focused on investing heavily on various projects especially in Natural Gas Liquid properties, in this case the STACK and SCOOP areas, along with Williston as well as Permian basins. It plans to draw significant volumes from these properties.These investments are expected to generate enough returns to support its 9-11% annual dividend growth target through 2021. Over the long term, the company aims to have a robust balance sheet position.

Thanks to ONEOK’s initiatives to strengthen balance sheet, the company received credit rating upgrades to investment grade from both S&P and Moody's in July 2017.

To summarize, we believe the company’s focus on investing in strategic integrated assets, supported by long-term goals will strengthen financial position. It will also aid in providing regular dividend hikes for investors.

Price Movement

In the last one year, shares of ONEOK have gained 10.9%, outperforming the industry’s rally of 6.9%.

Zacks Rank & Key Picks

ONEOK currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the sector include Algonquin Power & Utilities Corp. (TO:AQN) and CenterPoint Energy, Inc. (NYSE:CNP) , each carrying a Zacks Rank #2 (Buy), You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Algonquin Power delivered an average surprise of 33.17% in the trailing four quarters. Its 2018 earnings growth estimate is pegged at 6.79% year over year.

CenterPoint Energy delivered positive average earnings surprise of 6.42% in the last four quarters. Its 2018 earnings growth estimate is pegged at 9.16% year over year.

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