When ONEOK (OKE +1.34%) acquired its master limited partnership last year, the company thought the deal would give it enough fuel to grow its dividend 21% in 2017 and at a 9% to 11% annual pace through 2021. At the time, the two pipeline companies had between $1.5 billion to $2.5 billion of growth projects under development, which ONEOK thought would provide it with enough fuel to achieve that aim. Fast-forward not more than a year later, and the company has now secured more than $6 billion of expansions, which should give it the fuel to grow its earnings at an accelerated clip in the coming years, making it an excellent stock for those seeking both growth and income.
Adding another $1.5 billion in fuel
ONEOK recently added several more growth projects across its footprint. Overall, the company expects to invest $1.5 billion into these expansions, which should generate $250 million to $375 million in annual EBITDA. That'll move the needle for a company that expects to produce roughly $2.35 billion in adjusted EBITDA in 2018.
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The largest expansion will be a new 125,000 barrel per day (BPD) natural gas liquids (NGLs) fractionator, which is a facility that separates raw NGLs into ethane, propane, and butane. The company expects to invest $750 million into this facility, dubbed MB-5, as well as some related infrastructure that includes system expansions for additional fractionation capacity in the future as well as storage and export capabilities at its Mont Belvieu NGL hub.
In addition to that project, the company will extend and expand its Arbuckle II NGL pipeline. The extension takes the line further north into the STACK shale play of Oklahoma at the cost of $240 million. Meanwhile, the $60 million expansion will add additional pump facilities so the pipeline can move another 100,000 BPD, boosting its capacity up to 500,000 BPD. ONEOK expects to finish these projects as well as MB-5 by the first quarter of 2021.
Meanwhile, the company also plans to build the Demicks Lake II natural gas processing plant in North Dakota to support the continued growth of the Bakken Shale region. The company hopes to complete this $410 million project by the first quarter of 2020.
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Fast and furious growth
ONEOK's recent expansion announcements continue the blistering pace of new additions to the company's growth project backlog this year. It all started in early January, when the company secured enough long-term contracts with shippers to move forward with the Elk Creek Pipeline. The company is investing $1.4 billion in building the 900-mile NGL pipeline that should start up by the end of next year and generate between $233 million to $350 million in annualized adjusted EBITDA.
The company followed that up two months later by unveiling plans to invest $2.3 billion in building the Arbuckle II Pipeline, a new 125,000 BPD NGL fractionator (MB-4), and the first Demicks Lake plant. Those projects should generate between $383 million to $575 million in annual EBITDA when they enter service in 2020. The company followed them up with some smaller natural gas pipeline capacity expansions in the STACK as well as the Permian Basin. Finally, it recently acquired full ownership of the West Texas LPG pipeline from its cash-strapped partner and then secured another expansion of that system where it will invest $295 million to generate an incremental $50 million to $75 million of adjusted EBITDA.
Add it all up, and ONEOK's $6 billion building boom has the potential to generate $916 million to $1.375 billion of incremental earnings over the next few years. That's an upwards of 60% increase from 2018's mid-point, which is already on pace to be 20% higher than last year's level.
A growth stock disguised as an income stock
With a dividend yield of 4.8%, most investors see ONEOK as a high-yield stock, which is certainly the case. However, it's also a growth stock since the company expects to increase that payout at a double-digit pace for the next few years, with earnings likely growing at an even faster clip. Because of that, the company truly is in a class of its own.
