The board of ONEOK, Inc. (NYSE:OKE) has announced that it will pay a dividend of US$0.94 per share on the 16th of August. This means the annual payment is 7.1% of the current stock price, which is above the average for the industry.
ONEOK Is Paying Out More Than It Is Earning
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.
Over the next year, EPS is forecast to expand by 26.2%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 125%, which probably can't continue putting some pressure on the balance sheet.
ONEOK Has A Solid Track Record
The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was US$0.96 in 2011, and the most recent fiscal year payment was US$3.74. This means that it has been growing its distributions at 15% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
ONEOK's Dividend Might Lack Growth
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that ONEOK has grown earnings per share at 15% per year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about ONEOK's payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for ONEOK that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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