This 4.7%-Yielding Dividend Stock Has High-Octane Growth Coming Down the Pipeline Through 2028

Oneok (NYSE: OKE) is a bit of an outlier. The energy infrastructure company has a high-yielding dividend (recently around 4.7%) and a high earnings growth rate (more than 10% annually). That growth and income combo has enabled the company to produce strong total returns (13% annually over the past decade).

The energy midstream company has a lot of growth coming down the pipeline over the next several years. Because of that, it could continue producing robust total returns, making it look like an attractive long-term investment opportunity.

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Dual fuel sources

Oneok has grown its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for 11 straight years. It has delivered an impressive growth rate of more than 16% annually during that period. What makes that growth even more remarkable is that crude oil prices have declined during that time frame, including experiencing two major plunges (the oil price war from 2014-2016, and the pandemic in 2020 and 2021).

The company overcame the decline in oil prices because volumes, not pricing, fuel its earnings. Oil and gas production and demand have risen during that period, which has driven higher volumes through its existing assets. Rising demand also allowed the company to invest in expansion projects to support volume growth.

On top of that, Oneok has made several major acquisitions that have accelerated its growth rate in recent years. In 2023, it completed its transformational $18.8 billion acquisition of Magellan Midstream Partners. Last year, it bought Medallion Midstream and a controlling interest in EnLink Midstream for $5.9 billion. It followed that up by purchasing the remainder of EnLink earlier this year.

Those acquisitions have significantly expanded Oneok's operations and earnings. Its adjusted EBITDA is on track to rise from $5.2 billion in 2023 to over $8.2 billion this year, a nearly 60% surge.

More growth is coming down the pipeline

Oneok's acquisition spree provided it with incremental income from the acquired companies and visible growth from capturing cost and commercial synergies. Those synergies will add over $250 million to the company's bottom line this year. It expects to capture additional synergies in 2026 and 2027. That helps drive the company's view that its adjusted EBITDA will increase by around 10% next year, while its earnings per share will jump by more than 15%.

On top of that, the company has several organic expansion projects on track to come online through early 2028. Oneok is expanding its refined products system in the Denver area, which it expects to complete by the middle of next year. It's also rebuilding a 210,000-barrel-per-day natural gas liquids fractionator in Medford, OK, which will come online in two phases (late 2026 and early 2027).

In addition, Oneok formed a joint venture with MPLX earlier this year to build an LPG export terminal in Texas City, Texas, and a new pipeline from its Mont Belvieu, Texas, storage facility to the new terminal. Oneok will own 50% of the terminal (and split the $1.4 billion cost with MPLX) and 80% of the pipeline (investing $280 million of the $350 million total). The companies expect to complete these projects in early 2028.

The combination of commercial synergies and organic expansion projects will fuel strong earnings growth for Oneok over the next several years. That will enable the company to continue growing its already high-yielding dividend. It currently anticipates increasing its payout by around 3% to 4% per year. The company will also use its excess free cash flow to maintain a strong balance sheet and repurchase shares.

High total return potential

Oneok is in the midst of a growth spurt fueled by its recent acquisitions and its pipeline of organic expansion projects. That growth should enable the company to continue increasing its high-yielding dividend. This combination of income and growth could give the company the fuel to continue producing high-octane total returns. It makes Oneok look like a compelling investment opportunity for those seeking income and upside potential.

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