Oneok Has Delivered More Than 30 Years of Dividend Stability and Growth. With a 4.7% Yield, Is It the Best Income Stock in the Sector to Buy Right Now?

Whenever investors are required to take on even modest amounts of risk, "best" is a subjective word. It means different things to different market participants, and that's true with energy stocks and any other corner of the equity market, for that matter.

For some, the best stock is simply the top-performing name. Others assess "best" in value terms, while some investors view leadership from an income perspective. On the note of dividends, there's Oneok (NYSE: OKE), an Oklahoma-based midstream powerhouse that's been in business for 120 years.

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The stock currently has a dividend yield 4.7%, which is enough to entice many income investors. Yield alone doesn't make any stock "good" or "the best." That said, Oneok is undoubtedly one of the energy sector's top dividend ideas. Here's why.

Oneok has the two Cs

Dividend investing is a long-term style. When accounting for that, investors ought to consider the two Cs: commitment and consistency.

When evaluating dividend stocks, regardless of sector, investors should prioritize companies' commitments to their dividends and the consistency with which those payouts grow and are delivered. Oneok easily checks those boxes, highlighting why it's one of the best payout names in energy.

Over the past 30 years, not only has this midstream company's payout been delivered uninterrupted, but it's also grown more than 14-fold. Over the past 12 years, Oneok's dividend growth easily trounced the payout growth rates of multiple C-Corp peers. The energy company is also clear about its dividend intentions, telling investors it expects to grow the payout at an annual rate of 3% to 4% while maintaining a payout ratio of 85% or lower. If inflation normalizes, Oneok's dividend growth would likely outpace rising consumer costs, fortifying the stock's status as one of the best energy dividend names.

All of that sounds great, and it is, but astute investors know that, for energy dividend payers, payout consistency must be rooted in earnings growth, not taking on debt to fund shareholder rewards. This is another area in which Oneok shines as one of the best. The company holds investment-grade credit ratings and has a 12-year streak of growing earnings before interest, taxes, depreciation, and amortization (EBITDA).

The best of the best? Maybe

There's no shortage of oil dividend stocks to consider, but they're not all cut of the same cloth. There are some questionable characters and, to borrow a phrase from "Top Gun," there are energy payout names that are the best of the best.

Oneok is in the latter camp, and that's not hyperbole. It's a claim supported by other fundamental factors, including smart deal-making that generated $500 million in savings to bolster the bottom line. Additionally, Oneok's capital spending is forecast to decline after this year. Throw in some significant tax deferments, and free cash flow could top $2 billion by 2027.

Plus, Oneok trades at a discount to peers, but if the company hits its cost-savings and deleveraging objectives, that gap could close in its favor, potentially generating significant upside for investors exclusive of the dividend.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool recommends Oneok. The Motley Fool has a disclosure policy.