On Dec 30, 2013, the shares of ONEOK Inc. (OKE) climbed to its 52-week high of $61.49 primarily on the back of strong earnings guidance for 2014, chances of an increase in the 2014 annual dividend, a systematic organic growth strategy and a positive impact from the termination of the energy services operations.
On Dec 2, 2013, ONEOK provided financial guidance. The company expects its 2014 net income to be $285 million, up 9.5% from $260 million guided for 2013. The company’s performance in 2014 may primarily drive by strong contribution from its subsidiary, ONEOK Partners, L.P. (OKS). ONEOK Partners’ performance is expected to improve primarily owing to an increase in natural gas gathering and processing volumes, and higher natural gas liquids (“NGL”) gathering volumes as a result of the completion of several projects.
In addition, the company plans to increase the 2014 annual dividend by 53% to $2.33 per share from $1.52 per share in 2013, subject to the board’s sanction. ONEOK also expects to increase the average annual dividend in the range of 20% - 25% between 2013 and 2016. The company’s practice of raising dividends at regular intervals will benefit the stock as it attracts investor attention.
In 2014, ONEOK plans to invest $2,268 million and allocate the majority to several projects under ONEOK Partners’ portfolio. Currently, the partnership is in the middle of several important projects and plans to begin few projects in the near term, including a venture in Williston Basin. These projects will enable ONEOK to serve more customers in the future.
ONEOK plans to terminate its natural gas distribution business. Post transaction, the distribution business will be named as ONE Gas, Inc. We believe this initiative will enable the company to assign resources as per its strategic preferences.
We expect ONEOK’s well-diversified asset base, systematic capital investment plan, timely completion of projects and efforts towards maximization of shareholder wealth to likely boost its performance going forward.
ONEOK Inc. currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include AGL Resources Inc. (GAS) and MDU Resources Group Inc. (MDU), each holds a Zacks Rank #2 (Buy).
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