Interested In ONEOK's (NYSE:OKE) Upcoming US$1.03 Dividend? You Have Two Days Left

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that ONEOK, Inc. (NYSE:OKE) is about to go ex-dividend in just two days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, ONEOK investors that purchase the stock on or after the 3rd of February will not receive the dividend, which will be paid on the 14th of February.

The company's next dividend payment will be US$1.03 per share, on the back of last year when the company paid a total of US$3.96 to shareholders. Calculating the last year's worth of payments shows that ONEOK has a trailing yield of 4.0% on the current share price of US$99.87. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether ONEOK can afford its dividend, and if the dividend could grow.

Check out our latest analysis for ONEOK

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 83% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out more than three-quarters (84%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that ONEOK's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, ONEOK's earnings per share have been growing at 11% a year for the past five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, ONEOK has lifted its dividend by approximately 5.9% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

To Sum It Up

Is ONEOK worth buying for its dividend? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that ONEOK is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. All things considered, we are not particularly enthused about ONEOK from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 1 warning sign for ONEOK that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.