Earnings Transforms Business Into a Natural Gas Infrastructure Giant

Oneok Earnings’ Transformation

ONEOK (NYSE: OKE) is a midstream natural gas company that gathers, transports, and stores natural gas across North America.

Operations are conducted while maintaining an environmentally responsible conscience, which may benefit them greatly in the long run if more environmental regulations are put into place. Although, natural gas is one of the cleaner forms of energy when compared to fossil fuels which means it has the potential to be around a lot longer than a majority of the energy solutions we utilize today.

Quarterly earnings results were reported, so how did ONEOK perform, and what happens next?

Recent Earnings

In the second quarter, ONEOK reported a net income of $342.1 million which gave an earnings-per-share (EPS) of $0.77. This income didn’t just come from nowhere, this was after increases in many segments of ONEOK’s business. The regional natural gas volumes processed in the Rocky Mountains increased by an incredible 52%.

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Revenues also increased to $3,388.9 million compared to $1,660.7 million in the previous year. This revenue growth was primarily driven by commodity sales which more than doubled on the balance sheet.

ONEOK also declared a quarterly dividend of $0.0935 per share, or $3.74 per share if you’re looking at the dividend on an annual basis.

While these earnings are great, what can we realistically expect for earnings and revenue results in the future?

Future Estimates

ONEOK stated that net income for the full year should reach between $1,200 million to $1,500 million. This shows that there is confidence in the services they provide to continue to grow and expand so that continued profits can flow into the business.

This should excite shareholders because it signals that ONEOK’s business is returning to pre-pandemic levels of revenue and earnings, yet their share price at the time of writing is still down over 30% since their falling out in February and March of 2020.

It’s become clear that revenue and profits are returning to normal levels, perhaps in the long-term ONEOK could continue to grow operations further as a sustainable natural gas gatherer, transporter, and storer. There’s no reason why this couldn’t happen.

A Dividend Paying Stock

Dividend stocks can bring investors passive income over the long-term which can either be used for reinvestment, expenses or added income. OKE may be a potential candidate for a dividend stock in a portfolio because of its compelling dividend history of increases.

For multiple decades, OKE has been providing high yield dividends to its shareholders, however, there is a slight concern in regards to the dividend payout ratio.

As of the trailing 12 months of earnings for OKE stock, the dividend payout ratio stands at 263.38%. Although, It’s important to note this is expected to come down dramatically over time. More specifically based on next year’s earnings estimates according to MarketBeat, this may drop to near 105.65%.

While a dividend payout ratio of 75% or below is recommended, it’s important to remember that ONEOK is recovering from a massive hit to its business model in 2020. This payout ratio should drop further as business returns and if ONEOK wants to prove to their shareholders that they can sustain a dividend payout, which historically they haven’t had trouble doing so.

Overall, OKE can be a compelling addition to a dividend portfolio. It’s important to remember that even though the outlook may be clear, there will almost always be some bumps along the way. This goes without saying in any investment opportunity because the stock market can be a volatile environment, especially when it comes to outside factors or recent news.

Closing Thoughts

Oneok is a fantastic income play. For years this company has been steadily growing its dividend and dishing out cash to its shareholders on a quarterly basis. From its march 2020 lows this stock has rallied more than 100% giving shareholders a delicious ROI plus six cash distributions for income. A solid play for this company is a long-term buy and hold or you can get creative with option strategies to gain exposure to this stock and collect some income along the way.

A covered call strategy will allow exposure to the stock, a collection of premium as income, and if not assigned early a dividend payout for holding the stock. Looking at the option chain for OKE you would need to purchase 100 shares of stock at the current price of $52.70 (at the time of this writing). You will need $5270 ($52.70 x 100 shares) for this strategy.

The $55 strike price for the January 21, 2022 Call option pays a mid range premium of $3.15 per share to the seller of this option contract. Remember each contract covers 100 shares.  You collect this premium immedialy into your brokerage account and just wait. If OKE trades above your strike price of $55 you will of course be obligated to sell your stock at that price regardless of where the price sits above $55. If this happens your return is 10.27% for a 5 month holding period. Annualized that is a little better than 20%…not a bad return for a sit and wait strategy.

This is not intended to be investment advice. As always do your own due diligence and invest based upon your own risk appetite and consult your own financial advisor for the right investment strategy for your specific needs.

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Andre Mitchell
Andre Has been trading financial markets for 5+ years. Has consistently grown small account sizes to medium sizes. Andre is a long term income investor that primarily operates in the stock options market and loves sharing his insight and experience with people who love investing and growing their financial wealth.
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