Four Days Left To Buy ONEOK, Inc. (NYSE:OKE) Before The Ex-Dividend Date
Readers hoping to buy ONEOK, Inc. (NYSE:OKE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase ONEOK's shares on or after the 2nd of November, you won't be eligible to receive the dividend, when it is paid on the 16th of November.
The company's next dividend payment will be US$1.07 per share, on the back of last year when the company paid a total of US$4.28 to shareholders. Based on the last year's worth of payments, ONEOK has a trailing yield of 4.5% on the current stock price of US$96.01. If you buy this business for its dividend, you should have an idea of whether ONEOK's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. ONEOK paid out 73% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether ONEOK generated enough free cash flow to afford its dividend. The company paid out 91% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
ONEOK paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were ONEOK to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
View our latest analysis for ONEOK
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. It's encouraging to see ONEOK has grown its earnings rapidly, up 33% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, ONEOK has lifted its dividend by approximately 5.7% a year on average. Earnings per share have been growing much quicker than dividends, potentially because ONEOK is keeping back more of its profits to grow the business.
The Bottom Line
Has ONEOK got what it takes to maintain its dividend payments? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note ONEOK paid out a much higher percentage of its free cash flow, which makes us uncomfortable. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
So if you want to do more digging on ONEOK, you'll find it worthwhile knowing the risks that this stock faces. For example, ONEOK has 2 warning signs (and 1 which is a bit concerning) we think you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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