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ONEOK’s Fee-Based Commitments & Steady Investments Bode Well


We recently issued an updated research report on ONEOK, Inc. OKE.

ONEOK benefits from ONEOK Partners acquisition, higher fee-based earnings and midstream assets located in higher productive regions.

Estimates for ONEOK have been revised upward over the past 30 days. Notably, the Zacks Consensus Estimate for the company’s 2019 and 2020 earnings has moved up by 0.6% and 0.8% to $3.09 and $3.73, respectively.

Additionally, the company delivered average four-quarter positive earnings surprise of 4.58%.

What’s Driving the Stock?

ONEOK is poised to benefit from long-term fee-based commitments in its Natural Gas Gathering and Processing, and Natural Gas Liquids segments. The company expects nearly 85% of its earnings in 2019 to be fee-based. From these fee-based solutions, the company expects a 20% increase in adjusted EBITDA in 2020.

Furthermore, the company is consistently investing in organic growth projects to expand existing operating regions and provide a broad range of services to crude oil as well as natural gas producers and end-use markets. In the first six months of 2019, capital expenditures (less allowance for equity funds used during construction) amounted to $1,720.2 million. It expects total growth capital expenditures of 2019 in the range of $2,500-$3,700 million.

Moreover, an increase in drilling activities in highly productive regions is expected to boost demand for the company’s midstream services. ONEOKexpects that recently-completed capital growth projects in the Permian Basin, STACK and SCOOP areas to improve transportation volume as well as will increase demand for pipeline services.

Dividend Payment

Backed by strong cash flow generation capability, ONEOK is strengthening the balance sheet and increasing the value of its shareholders through the payment of dividends. During July, ONEOK announced a 2.8% increase in the quarterly dividend to 89 cents from 86.5 cents.

ONEOK apart, there are other companies from the same industry that has a stable dividend payment history. Notably, PPL Corporation PPL is paying dividends for 292nd consecutive quarters. American States Water Company AWR has paid dividends to its shareholders every year since 1931 and raised the same in each calendar year for the last 65 consecutive years.Meanwhile, Duke Energy DUK has a stable dividend payment history. It has distributed a quarterly cash dividend for 93 consecutive years supported by stable liquidity.

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