Since my primary investment objective revolves itself around the generation of income via higher-yielding plays, dividend-related events are always something I tend to keep an eye on. With that said, and in the wake of its latest dividend increase, I wanted to highlight several reasons why I've chosen to stay bullish on shares of Oneok, Inc. (NYSE:OKE).
Headquartered in Tulsa, Oklahoma, ONEOK, Inc. operates as a diversified energy company in the United States. The company gathers, processes, stores, and transports natural gas; gathers, treats, fractionates, stores, and transports natural gas liquids; and owns and operates interstate and intrastate regulated natural gas transmission pipelines and natural gas storage facilities, as well as stores and distributes NGL products to petrochemical manufacturers, heating fuel users, ethanol producers, and refineries and propane distributors.
Recent Trend Behavior
On Tuesday, shares of OKE, which currently possess a market cap of $13.24 billion, a forward P/E ratio of 32.27, and a dividend yield of 3.52% ($2.24), settled at a price of $63.71/share. Based on a closing price of $63.71/share, shares of OKE are trading 3.33% below their 20-day simple moving average, 2.75% below their 50-day simple moving average, and 9.85% above their 200-day simple moving average.
Although these numbers indicate a short-term downtrend and a long-term uptrend for the stock, which generally translates into a slight selling mode for most near-term traders and a buying mode for long-term investors, I strongly believe the company's trend behavior will improve in the wake of its latest earnings announcement which occurred on August 5.
On Tuesday, August 5, Oneok, Inc. reported the results of what I believe to be a solid second quarter even though the company missed its EPS and revenue estimates for Q2. The company's Q2 EPS of $0.33/share missed street estimates by a margin of $0.03/share, and its revenue of $3.07 billion missed street estimates by an a margin of $0.39 billion even though Oneok demonstrate year-over-year revenue growth of 10.8%.
So what drove results higher during the second quarter? According to Terry K. Spencer, Oneok's President and CEO,
Higher natural gas volumes gathered, processed and sold, and higher natural gas liquids volumes sold in the natural gas gathering and processing segment as a result of recently completed capital-growth projects at the partnership contributed to ONEOK's solid second-quarter results.
I strongly believe that if natural gas and natural gas liquids volumes continue to increase over the next 3-6 months, there's a very good chance Oneok will meet and/or exceed full-year earnings expectations.
Sustainable Dividend Coverage Ratio
During the second-quarter cash flow available for dividends was $130.0 million, providing 1.09x coverage of cash dividends, reflecting higher distributions declared from its general and limited partner interests in ONEOK Partners (NYSE:OKS), (which were $156.5 million, an 18 percent increase from the second quarter 2013).
If Oneok, Inc. can continue to benefit from higher distributions declared from its general and limited partner interests in ONEOK Partners, there's a very good chance its cash flow available for dividend could increase which would subsequently enhance its dividend coverage ratio.
For those of you who may be considering a position in Oneok, Inc., I strongly recommend keeping a close eye on both the company's long-term dividend behavior and its long-term earnings growth.
When it comes to the company's dividend behavior over the next 12-24 months, I strongly anticipate additional increases in its annualized dividend especially since the company stands to benefit from higher distributions declared from its general and limited partner interests in ONEOK Partners. When it comes to the company's long-term earnings growth, I strongly believe the company's ability to demonstrate higher natural gas and natural gas liquids volumes will drive the company's long-term earnings growth higher and higher.
Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in OKE over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.