Midstream energy company ONEOK, Inc. (NYSE:OKE) had an active year in 2017. The big move was the company buying its controlled limited partnership, bringing all of its assets under one corporate roof. With that move complete, investors need to be watching management's ability to meet three key goals: Grow the business, reduce debt, and keep increasing the dividend. That's a lot to achieve all at once. Can ONEOK, Inc. do it?

A brief review

With a $23 billion market cap, ONEOK is a relatively large midstream company. Its business is focused around fee-based assets, meaning demand for energy is more important than the price of the natural gas and refined products it helps move. A key factor here for investors is that ONEOK is structured as a company, not a limited partnership. That means it can be owned without any issues in a tax-advantaged retirement account, something that can't be said of limited partnerships.   

A man checking on midstream equipment

Image source: Getty Images.

ONEOK's yield, meanwhile, is a robust 5.3%. That's more than twice what you'd get from an S&P 500 Index fund, though not nearly as high as what you can get from some other midstream companies. The difference is driven by two factors. First, ONEOK has increased its dividend for 16 consecutive years. Second, over the past decade, the annualized growth rate of the dividend was an incredible 16%! For comparison, industry bellwether Enterprise Products Partners L.P. (NYSE:EPD) only increased its distribution by 5.7% a year over the same span. That helps explain the premium investors are willing to pay for ONEOK's dividend.

A new path

As noted above, though, ONEOK has undertaken a new direction. It bought its controlled limited partnership to simplify its business and is now focused on three primary goals: growing, reducing leverage, and increasing the dividend. Every one of those goals requires cash.   

However, it looks like ONEOK is off to a good start. It has roughly $1.9 billion worth of projects in the works that will take until the end of 2019 to complete. Its previous growth efforts have led to adjusted EBITDA growth every year since 2013, and it's debt to EBITDA has fallen from 6.7 times to 4.7 times over that span. The goal is less than 4 times, a figure management is well on its way to achieving. And after an equity issuance in late 2017 and another in early 2018, it expects to have enough cash to fund most of the growth projects it has lined up right now.   

Two line charts, one showing EBITDA growing the other showing Debt to EBITDA falling.

ONEOK has been doing a good job of growing its business and using that growth to reduce leverage. Image source: ONEOK, Inc.

With growth and leverage taken care of, the next question is the dividend. The goal is dividend growth of roughly 10% a year through 2021, with coverage of 1.2 times. Coverage was 1.3 times in 2017, with dividend growth of a little over 10% over the past year. Management is firing on all cylinders at this point, and there's no reason to believe it won't continue to meet its lofty goals. That's especially true since the robust dividend coverage it achieved last year provides ample room for additional increases.   

The answer is yes

The team running ONEOK has put up some aggressive goals, including a lofty 10% annual rate for dividend hikes. So far, though, it's managed to achieve its targets without skipping a beat. Better yet, it looks like the midstream company has structured a future that will allow it to continue to grow its business, further reduce leverage, and keep rewarding shareholders with dividend increases all at the same time. There's a lot to like here for income investors.