Last update on 2024-06-27

ONEOK (OKE) - Dividend Analysis (Final Score: 5/8)

Explore ONEOK (OKE)'s dividend stability score of 5/8 based on an 8-criteria scoring system, assessing performance and stability over the past 20 years.

Short Analysis - Dividend Score: 5

We're running ONEOK (OKE) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

ONEOK (OKE)'s dividend policy was analyzed using 8 criteria, which include dividend yield, growth rate, payout ratio, earnings and cash flow coverage, dividend stability, years of payment, and stock repurchases. 1. **Dividend Yield**: ONEOK’s average of 5.44% is slightly below the industry average of 5.53%. The yield fluctuates, but overall it often lags behind the industry average. 2. **Dividend Growth Rate**: The growth rate is unpredictable and volatile, not consistently above 5% annually, which can be a concern for those seeking steady dividend raises. 3. **Payout Ratio**: The average payout ratio is high at 97.19%, surpassing the ideal 65%. High payout ratios in some years can risk reinvestment abilities and highlight earnings volatility. 4. **Earnings Coverage**: The ratio fluctuates but shows improvements in recent years. Years where EPS significantly exceeds DPS are protected against downturns. 5. **Cash Flow Coverage**: Cash flow coverage of dividends is inconsistent, with years where the free cash flow doesn't cover dividends, indicating potential risks. 6. **Stable Dividends**: ONEOK has increased its dividends steadily over 20 years without major cuts, promising consistency for income-seeking investors. 7. **Long-term payment**: With over 25 years of paying dividends consistently, ONEOK demonstrates stability and reliability for long-term dividend investors. 8. **Stock Repurchases**: The number of shares has increased over time despite occasional buybacks, suggesting possible shareholder dilution.

Insights for Value Investors Seeking Stable Income

Given the analysis, ONEOK presents a mixed case as a dividend stock. While it has a strong history of paying and increasing dividends over 25 years without significant drops, the inconsistency in growth rate, high payout ratios, and unpredictable cash flow coverage are concerns that might affect future dividend sustainability. The mixed performance in share repurchases could mean potential shareholder dilution. For investors focused solely on consistent dividend payouts with stable and reliable track records, ONEOK might be attractive. However, for those seeking low payout ratios, steady growth rates, and regular stock buybacks for added value, ONEOK might not be the best choice. It would be wise to continue monitoring their financial health and performance before making an investment decision.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

dividend yield of a stock and why it is important to consider

ONEOK Inc. (OKE) exhibits a current dividend yield of 5.44%, which is marginally lower than the industry average of 5.53%. Over the last 20 years, ONEOK’s dividend yield has ranged from a low of 2.38% in 2013 to a high of 9.85% in 2015. During the 2008 financial crisis, the yield did spike to above-average levels, but this pattern is more the exception than the rule.When you study the historical data, it's clear that ONEOK’s dividend yield often falls short or just touches the industry average. For example, in 2004 and 2006 it was significantly lower (3.10% vs. 5.09% and 2.83% vs. 3.70% respectively), while in challenging years like 2008 and 2015, it soared above the industry average.TRend wise, it's a mixed bag. Historically, their dividend yield usually lags behind the industry trend, suggesting it might not always be the strongest pick in a dividend-focused investment strategy. However, given the stable 3.74 dividend per share in recent years, if the stock price appreciates, the yield might slightly fall, but payout value per share retains a robustly growing trend.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate measures the annualized percentage rate of growth of the dividend paid by a company. A higher growth rate often indicates a strong and improving financial health of the company.

The dividend growth rate for ONEOK (OKE) over the past 20 years shows a volatile pattern. The data points indicate a significant fluctuation, with dividend per share ratios ranging from 0 to 64.002. While these numbers show instances of high dividends, the volatility and inconsistency (including years with zero dividends) suggest underlying issues. Examining the average dividend ratio, it stands at 14.0977, which doesn't provide a clear 5% or more growth pattern annually. Hence, this criterion is not consistently met by ONEOK (OKE), indicating a less stable dividend growth trend over the period. As an investor looking for steady dividend growth, this trend raises red flags and may necessitate a deeper investigation into the reasons for such fluctuation.

Average annual Payout Ratio lower than 65% in the last 20 years?

This ratio measures the portion of earnings paid out as dividends to shareholders. A lower payout ratio, ideally under 65%, indicates that the company has ample room to reinvest into the business.

Over the last 20 years, ONEOK's average payout ratio has been 97.19%, significantly higher than the desirable threshold of 65%. Notably, the payout ratio spiked sharply in years such as 2013 (101.94%) and 2020 (263.10%). This high payout ratio could signal potential risks. While the company's commitment to returning profits to shareholders is evident, it may limit the funds available for reinvestment and could indicate exposure to earnings volatility, as seen in years with exceptionally high payout ratios. Therefore, this trend is negative under Criterion 1.2.

Dividends Well Covered by Earnings?

Dividends should ideally be covered by earnings to ensure that the company can sustain its dividend payouts without jeopardizing its financial stability.

Analyzing the Earnings Per Share (EPS) against the Dividend Per Share (DPS) for ONEOK (OKE) over the years, it's evident that the coverage ratio fluctuates significantly. A ratio above 1 indicates good coverage, whereas ratios below 1 indicate that dividends are not fully covered by earnings. The coverage ratio has seen notable improvements, especially in years like 2005, 2014, 2015, 2016, and 2020 where EPS exceeded DPS significantly. However, there are years such as 2013, 2018, 2022, and 2023 where EPS barely covers DPS, which can be a concerning trend. Overall, the long-term trend shows an improvement in recent years, suggesting a positive trajectory for dividend sustainability. Periods where the coverage significantly exceeds 1 are beneficial because they provide a buffer against any potential downturns in earnings without necessitating cuts in dividends.

Dividends Well Covered by Cash Flow?

Dividend coverage by cash flow measures the ability of a company's free cash flow to pay for its dividend obligations. It is vital as it shows if a company generates enough cash to sustain and potentially grow dividends without compromising on other financial obligations.

Analyzing ONEOK (OKE)'s dividend covered by cash flow from 2003 to 2023, we observe a fluctuating trend. In many years, the ratio is below 1 (negative in some instances), indicating that the company's free cash flow was insufficient to cover dividend obligations. For example, 2019 (-76.65%) and 1990 (-541.8%). Conversely, there are years like 2007 (102.89%) and 2022 (98.12%) where the coverage is robust. Recent years show improvement, such as 2022 (98.12%) and 2023 (65.07%). These trends reveal that while ONEOK has faced challenges, it seems to be moving towards better coverage, though potential risks remain. This erratic pattern lends to a cautious outlook on significant dividend sustainability improvements unless consistent free cash flow growth ensues.

Stable Dividends Since the Company Began Paying Dividends?

Explain the significance of having stable dividends, defined as not dropping by more than 20% over the past two decades, for income-seeking investors.

The provided data shows that from 2003 to 2023, ONEOK (OKE) managed to increase its annual dividends per share from $0.3021 to $3.82. Since the dividends generally exhibit an upward trend and did not drop by 20% in any year, it signifies strong financial health and management's commitment to returning capital to shareholders. This stability is significant for income-seeking investors who favor consistent and predictable dividend income, ensuring a reliable cash flow. Notably, in challenging economic years, ONEOK still maintained its dividend, reinforcing investor confidence.

Dividends Paid for Over 25 Years?

Assesses if ONEOK has consistently paid dividends for at least 25 years and indicates stability and reliability over the long term.

Based on the provided data, ONEOK (OKE) has paid dividends consistently from 1998 to 2023, achieving the milestone of over 25 years of dividend payments. Starting with a modest dividend per share of $0.2648 in 1998, the company has shown a consistent upward trend in its dividend payouts, reaching $3.82 per share in 2023. Notably, during this period, there hasn't been any year where the company failed to provide dividends, which underscores its commitment to shareholders and reliability as a dividend-paying company. This trend is highly favorable, as it reflects a strong dedication to returning value to shareholders, financial stability, and possibly, sustained earnings growth. Importantly, the incremental increases—like moving from $0.2648 to $3.82 over 25 years—suggest a strong performance and confident management strategies. Whether it's in periods of economic expansion or downturns, ONEOK’s ability to maintain and grow its dividend payments fosters a sense of trust and illustrates the firm's capacity to generate consistent cash flows.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

The data indicates that over the past 20 years, ONEOK's number of shares has generally increased rather than decreased. There are specific years such as 2007, 2008, 2011, 2012, 2013, and 2019 where share repurchases occurred. Despite these occasional repurchases, the overall trend shows a significant increase in the number of shares from 193,998,000 in 2003 to 484,300,000 in 2023. On average, looking at repurchase activity only, it equates to an average rate of approximately 5.26% on the pertained years. This diverse pattern suggests a lack of a consistent share repurchase strategy, which raises questions concerning how beneficial these buybacks have been in returning value to shareholders. At the same time, it also indicates that share issues have heavily outweighed repurchases. Therefore, the trend can't be deemed favorable as it led to potential shareholder dilution instead of value accrual for existing shareholders.