ONEOK: A Hidden Gem
ONEOK Inc is a diversified natural gas utility company from Oklahoma. Incorporated in the year 1906 this fortune 500 company has been one of the leaders in the natural gas utility industry. ONEOK focuses primarily on marketing natural gas and related services in the US. ONEOK owns and operates natural gas liquids (NGL) systems and is primarily in the business of gathering, processing, storage, and transportation of natural gas. It has 38,000-mile integrated network of NGL and natural gas pipelines.
The ONEOK stock has been a clear winner in the stock market and has been inline with the broader market. From a low of 20 USD in March 2020 it crossed 50 USD in March 2021. Even though the stock has more than doubled in the last year the true picture can be seen if you zoom out and get a view of the stock performance in the last 5 years. The stock has been range bound for almost 4 years i.e., from 2016 to 2020 when it crashed to levels of 20 USD during the COVID pandemic.
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Clearly there was not a lot of inbound interest from the investors in the stock in the last 4-5 years during the Trump administration period. With the Biden administration at the helm of affairs and there being more clarity on the energy policy and the climate change policy there might be some stability witnessed in the stock. There could possibly be interest from the investors as they switch between the high performing tech stocks to the steadier traditional businesses.
A Closer look at Fundamentals and Financials
With market cap of approximately $23B, this is one of the prominent stocks in the natural gas industry. If there is one factor that should attract the investors more than anything else, that should be the consistent dividend payment and high dividend yield of the stock. With dividend yield of 7.25% it is one of the profitable business to be in and the dividend yield is going to provide the cushion in the uncertain times in the stock market.
The current P/E of the stock stands at 36.36 for the trailing twelve months period, however the outlook is even better as the forward P/E is projected to be 15.73 as per Yahoo Finance. The lower forward P/E should assure dividend payment to continue in the future and the possibility of a stock re rating as the investor interest moves north.
Going into the financials of the company, it has exceptional operating margin of 22.81% and has good return on equity of 9.99%. OKE has a revenue of $8.54B in the last 12 months which is rather good for a company with market cap of $23B. However, the downside on this stock is the total debt which stands at $14.56B which is high like many other companies in the energy space.
In summary this is a good stock to hold for the long term if you want decent and consistent return on investment in terms of the dividend payout. As the investor interest gradually reduces in the energy sector stocks, the stock might not provide stellar long term returns but can provide consistent dividend payout every quarter.