Shares of ONEOK (NYSE:OKE) cratered 56.1% during the first half of 2020, according to data provided by S&P Global Market Intelligence. Several factors weighed on the pipeline stock, including the impact of crashing crude prices on its balance sheet and worries about its ability to maintain its dividend.
The U.S. oil price benchmark, WTI, tumbled 36% during the first half of the year. The sell-off was much worse at one point as WTI crashed into negative territory due to a lack of storage capacity. That crash weighed on most oil-related stocks, including ONEOK.
Lower oil prices are having a significant impact on ONEOK. Many of its customers had to shut-in wells that were no longer profitable and halt their drilling programs. As a result, lower volumes will flow through ONEOK's pipelines and processing plants this year. Because of that, the company cut its full-year earnings outlook.
With its earnings under pressure, investors started worrying about ONEOK's ability to maintain its high-yielding dividend. The company pays out a larger portion of its cash flow than many of its pipeline peers, which is a potential issue given its elevated leverage ratio and capital spending requirement.
ONEOK has taken steps to address its dividend concerns. It issued new debt in March and May (paying a much higher price for that second round). It also amended its financial covenants, allowing it to have a higher leverage ratio, and sold some stock to bring in more cash. These moves have helped at least delay a dividend cut, though they haven't yet eliminated the possibility.
ONEOK believes it can fund its growth while continuing to pay a high-yielding dividend. But the market isn't sure the company can do both, evidenced by the fact that ONEOK yields more than 11% after its first-half sell-off. Given the uncertainty around its dividend, ONEOK is a bit too risky for income investors to buy these days, though it is an interesting high-yield stock to watch in the second half.