ONEOK Inc. (OKE) continues with its steady effort to maximize shareholders’ wealth through the payment of increased dividend. The board of directors has raised its quarterly cash dividend rate by 40% sequentially and 55.6% year over year to 56 cents per share. The revised dividend will be paid on May 15, 2014 to shareholders of record as of Apr 30.
On an annualized basis, ONEOK Inc.’s dividend rate will come to $2.24 per share. The annual dividend yield will be 3.7%, marginally higher than the sector average.
During the fourth-quarter 2013 earnings call, ONEOK Inc. had expressed its intention to hike its quarterly dividend rate to 56 cents per share in Apr 2014.
It is evident from past records that ONEOK Inc. has a stable dividend payment history. The company has hiked its quarterly dividend rate 18 times since Jan 2006. The last quarterly dividend hike was made in Jan 2014. The quarterly dividend had increased 5.3% to 40 cents per share from the previous payout.
For 2014, ONEOK Inc. intends to raise the dividend rate by 1.5 cents per share per quarter. The company is expected to allocate $560–$640 million for the 2014 dividend payout.
ONEOK Inc. plans to raise the average annual dividend in the range of 20%–25% between 2013 and 2016. This includes the estimated dividend hike in 2014 and 10% yearly increases in both 2015 and 2016. In the long term, the company is targeting to maintain a dividend coverage ratio of about 1.05 times, subject to approval.
We believe receiving higher projected cash distributions from ONEOK Inc.’s unit ONEOK Partners, L.P. (OKS) will enable the company to meet the increased dividends. The company plans to invest $2.27 billion in 2014, of which a major part is expected to be allocated to several growth projects under ONEOK Partners’ portfolio. These initiatives will boost the company’s profitability in the long run. Further, the company’s strategy of winning contracts from natural gas producers will ensure steady cash inflow.
ONEOK Inc. continues to show its efficiency in terms of improving operating cash flow. For 2013, cash provided by operating activities was around $1.29 billion, up 31.6% from $0.98 billion in the year-ago comparable period. A strong cash generation capacity supports ONEOK Inc.’s cash requirements for dividend payment and growth projects.
ONEOK Inc. currently has a Zacks Rank #3 (Hold). However, some better-ranked stocks in the same industry include AGL Resources Inc. (GAS) and Chesapeake Utilities Corporation (CPK). While AGL Resources holds a Zacks Rank #1 (Strong Buy), Chesapeake Utilities carries a Zacks Rank #2 (Buy).