Tags: ONEOK | OKE | OKS | energy

A Natural Gas Energy Dividend Play

By Tim Plaehn   |   Thursday, 22 Sep 2011 01:11 PM

ONEOK Inc. (OKE) is an energy company in the business of collecting, transporting, and processing natural gas. The company has significant assets involved in the processing and transport of natural gas liquids. ONEOK owns the general partner interest of ONEOK Partners L.P. (OKS), plus the company owns 43 percent of the outstanding limited partnership units.

For ONEOK Inc., the income from the general partnership plus the L.P. units provide the majority of company income. For the 2011 second quarter, the company reported operating income of $217 million. Of that total, $202 million was from ONEOK Partners. The balance of operating income came from natural gas distribution, providing income of $21 million, and energy services posted a loss of almost $6 million.

Dividend yield, growth

Limited partnerships like ONEOK Partners tend to be high yield stocks, and in this case the current yield is an attractive 5 to 5.5 percent, depending on the stock price. The dividend has been increasing at about 1 cent per quarter since mid-2006. The result, based on the current share price and historical dividend increases, is a stock with a 5 percent yield and a dividend growth rate of 4 percent per year.

ONEOK Inc. also pays an attractive dividend with a current yield of more than 3 percent. Buying this stock, however, tends to leverage the dividend growth of the partnership units. Since mid 2006, the OKE dividend rate has increased from 30 cents per quarter to the current 56 cents, a 13 percent compound growth factor. It is up to an individual investor to choose which makes the most sense, current yield or dividend growth rate. Of course, neither is guaranteed.

The analysts at Barclays Capital regularly update their rating on OKE and that rating has maintained an overweight status for a couple of years. Every 6 months or so Barclays reiterates the rating and increases its target price by $5 to $10.

The company next reports around Nov. 1.

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ONEOK Inc. (OKE) is an energy company in the business of collecting, transporting, and processing natural gas. The company has significant assets involved in the processing and transport of natural gas liquids. ONEOK owns the general partner interest of ONEOK Partners L.P....
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2011-11-22
 

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