Better Dividend Stock: Oneok vs. Kinder Morgan

The pipeline sector is home to several high-quality dividend stocks. Most pipeline operators generate stable cash flows backed by long-term contracts and government-regulated rate structures. That enables them to pay lucrative dividends.

Oneok (NYSE: OKE) and Kinder Morgan (NYSE: KMI) are leading pipeline stocks. They both pay attractive and growing dividends. Here's a look at which is the better dividend stock to buy right now.

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The steady growth should continue

Oneok's dividend currently yields just over 5%. That's significantly higher than the S&P 500's 1.1% dividend yield. The diversified energy midstream giant has a strong track record of paying dividends. It has delivered over a quarter century of dividend stability and growth. While Oneok hasn't increased its dividend every year, it has grown it by nearly 100% over the past decade, a period when most of its peers have cut their payouts.

The company aims to pay out less than 85% of its stable cash flow in dividends. That allows it to retain some capital to reinvest in its growth. Oneok also has a strong financial profile, with a target leverage ratio of 3.5 times. The company currently has several organic expansion projects underway, including joint ventures to build an LPG export terminal and a gas pipeline, both of which should enter commercial service in 2028. In addition, Oneok expects to capture hundreds of millions of dollars in annual commercial synergies from three major acquisitions it has completed in recent years. The earnings growth from these initiatives should support the company's aim to grow its dividend by 3% to 4% each year (Oneok recently hiked its dividend by 4% for 2026).

Cashing in on the gas pipeline building boom

Kinder Morgan currently has a 3.7% dividend yield. The natural gas pipeline giant expects to raise its payout by about 2% this year. That would be its ninth consecutive year of increasing its payment.

The gas pipeline giant cut its dividend over a decade ago to retain additional cash for expansion projects and maintain its strong financial profile. It still has a lower dividend payout ratio (around 50% of its stable cash flow), which is why its yield is lower than Oneok's. Kinder Morgan has a similarly strong financial profile compared to its peer, with its leverage ratio expected to be toward the low end of its 3.5 to 4.5 times target range this year (3.8 times).

Kinder Morgan is investing heavily to expand its gas pipeline network. It has $10 billion of projects in its backlog that it expects to complete by the second quarter of 2030. It's pursuing another $10 billion in expansion projects to enhance and extend its growth profile. These projects should fuel strong earnings growth while enabling Kinder Morgan to continue increasing its dividend.

More income now or more growth

Oneok offers investors a higher current dividend yield and is likely to increase its dividend faster over the next few years. That makes it a better dividend stock for those whose current priority is generating income. On the other hand, Kinder Morgan offers higher growth potential, making it better for those seeking higher total returns.

Matt DiLallo has positions in Kinder Morgan. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool recommends Oneok. The Motley Fool has a disclosure policy.