Why I Want to Buy This Beaten-Down 6%-Yielding Dividend Stock in My Retirement Account

The seemingly unrelenting rally in the stock market has made it harder to find attractively priced stocks to buy. The S&P 500 is up 18% over the past 12 months and almost 80% in the last three years. As a result, it trades at a pricey valuation of more than 20 times forward earnings.

However, there are a few interesting opportunities out there. One that I'm particularly intrigued by is ONEOK (NYSE: OKE). Shares of the energy infrastructure company have gotten shellacked, falling more than 40% from their 52-week high. That beat-down has driven up its dividend yield to around 6%. Here's why I'm considering taking advantage of this opportunity to add shares of the pipeline stock to my retirement account.

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What's fueling the sell-off?

The downdraft in ONEOK's stock price might suggest the company is facing financial challenges. However, that's not the case. It has generated nearly $3.8 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) through the first half of this year. That's up a brisk 22.5% compared to the year-ago period. The main driver is the positive impact from its acquisitions of EnLink and Medallion Midstream.

That's a continuation of the company's strong growth over the past few years. ONEOK has grown its adjusted EBITDA for 11 straight years at a robust 16% compound annual rate. Organic expansion projects fueled steady growth for the first nine years, while acquisitions (including its transformational 2023 deal for Magellan) have driven more robust growth over the past couple of years. Its most recent deals have ONEOK on track to deliver 21% adjusted EBITDA growth this year.

The company's acquisition-fueled growth acceleration in recent years had boosted its stock price (shares were up more than 80% at one point). However, it has given back most of those gains (the share price is now up less than 20% over the past three years). The only downside catalyst that makes sense is that investors in companies ONEOK acquired have opted to cash in on the rising value of the shares they received by selling them, which would have put downward pressure on the stock price.

Lots more growth ahead

The market is now pricing ONEOK as if it won't grow much in the future. However, that's not the case at all. The company has two visible catalysts that should fuel healthy earnings growth in the coming years, with an additional upside catalyst.

ONEOK is still in the middle of integrating its recent string of large-scale acquisitions. While it has already captured significant synergies from those deals, it expects them to continue boosting its bottom line. It sees up to $300 million in additional near-term synergies from the Magellan deal, bringing its future total to over $700 million. Additionally, it sees up to $125 million from its EnLink and Medallion purchases in the near-term, and an additional $200 million in the longer term, on top of the $125 million it expects to realize by the end of this year.

Additionally, the energy infrastructure giant has a half dozen high-return organic expansion projects in its backlog. For example, the company formed a joint venture (JV) with MPLX earlier this year to develop a new export terminal and an associated pipeline. ONEOK plans to invest $1 billion in this project, which should enter service in early 2028. The company is also part of another JV with MPLX and others to build the Eiger Express gas pipeline (mid-2028 expected completion date). These and other projects should fuel steady earnings growth over the next few years.

Meanwhile, ONEOK has the financial capacity to continue making acquisitions. The company recently completed a couple of smaller bolt-on deals. It acquired the remaining 49.9% interest in a gathering and processing JV in the Delaware Basin for $940 million and bought an additional 30% stake in the BridgeTex Pipeline, boosting its interest to 60%. Future deals would further enhance its growth rate.

ONEOK currently expects to deliver mid-to-high single-digit adjusted EBITDA growth next year. It could continue growing within that range in the coming years as it captures additional merger synergies, completes expansion projects, and makes more acquisitions. This drives the company's view that it can grow its 6% yielding dividend at a 3% to 4% annual rate in the coming years, adding to its more than quarter-century of dividend growth and stability.

A compelling opportunity

ONEOK's stock price slump makes it look like an attractive investment for my retirement account. It can provide a bond-like income stream and equity-like returns as it continues to grow its earnings and payout. That's why I recently wrote put options to potentially buy shares of ONEOK. They pay well and could enable me to buy shares at an even lower price in the future.

Matt DiLallo has the following options: short January 2026 $65 puts on Oneok. The Motley Fool recommends Oneok. The Motley Fool has a disclosure policy.