Hundreds of companies pay dividends to their investors. Because of that, it can be hard to know which one to pick if you're looking to keep your portfolio holdings manageable.
One dividend stock that stands out from the crowded field is Oneok (OKE -0.15%). The pipeline company offers a unique investment opportunity among S&P 500 members. Here's what makes it so distinct.
In a class of its own
Oneok stands out among stocks in the S&P 500:
Image source: Oneok Investors Relations Presentation.
There are around 500 companies in the S&P 500. However, only 380 have investment-grade credit ratings. That means they have the financial strength to weather an economic downturn. This characteristic could be important in 2023 if there's a recession.
Meanwhile, only 269 of those companies have large market caps of over $20 billion. Larger companies are more mature and stable, making them good portfolio anchors.
From that group, only 176 have high environmental, social, and governance (ESG) ratings of A or better from MSCI. In Oneok's case, it's an ESG leader with a AAA rating thanks to its strong corporate governance, lower carbon emissions, and health and safety standards. While it might seem strange to see a fossil fuel-focused company with such high environmental ratings, Oneok has helped lead the industry's efforts to reduce natural gas flaring in the Williston Basin by capturing this gas. It also provides the infrastructure to support renewable natural gas, helping prevent those methane emissions. Finally, the company aims to reduce its emissions by 30% by 2030. Because of that, it's making the energy sector much more sustainable.
From that group of sustainable, large-cap, investment-grade-rated companies, only 135 are on pace to grow their earnings per share by a 5% or greater rate over the next couple of years.
Finally, Oneok is the only company of that remaining group with a high-yielding dividend that it has never reduced. That track record of dividend stability is impressive, considering that many energy stocks have reduced their payouts in the past due to the sector's volatility.
An attractive dividend
Oneok has done more than maintain its dividend over the years. The pipeline company has steadily increased it over time. While it hasn't grown its payout every year, it has expanded it at a 13% compound rate since 2000.
The company should have the fuel to continue growing its dividend in the future. Its earnings continue to rise as it benefits from the $5 billion of expansion projects it completed in the recent past, setting it up to grow volumes and benefit from favorable commodity prices. Its earnings per share have increased by 13% over the past year. Meanwhile, the company expects its income to grow by more than 10% in 2023. Those rising earnings will supply Oneok with more money to sustain its dividend.
Further, as noted, the company has an investment-grade balance sheet. Leverage was a comfortable 3.8 times at the end of the third quarter, giving Oneok the financial capacity to invest in new expansion projects as opportunities arise while also continuing to pay its attractive dividend. The company funded nearly $900 million of capital projects through the third quarter to maintain and expand its energy infrastructure network.
Meanwhile, Oneok continues to seek new growth drivers that could give it the fuel to keep growing. For example, the company recently filed for a permit to build the Saguaro Connector Pipeline that would transport gas to the Mexican border for delivery to an export facility on that country's west coast. The company hopes to make a final investment decision on the project by the middle of 2023. Oneok has an excellent track record of completing expansion projects that help sustain and grow its dividend.
A unique dividend stock
Oneok stands out among dividend stocks. It offers investors a unique blend of safety, size, sustainability, growth, and income. That compelling blend of features makes it a high-quality dividend stock that could anchor any income portfolio.
