At its current share price, pipeline operator ONEOK (NYSE: OKE) offers investors a dividend yield of close to 8%. And while that’s significantly lower than the 15%-plus yield that it was sporting six months back, it is still extremely attractive. Also, few investors would complain about a stock doubling, which is what it did over that period to shrink the yield so dramatically.
So why is ONEOK paying such a hefty dividend, and what can investors expect from it in the future?
At the beginning of 2020, ONEOK’s stock price plunged by more than 75%, and it’s still down by more than 35% from its peak. The company’s earnings got impacted by the demand destruction resulting from the coronavirus. ONEOK’s gas gathering and processing operations are the most exposed to fluctuations in demand and commodity prices. Another business area where ONEOK’s earnings are exposed to commodity prices is its optimization and marketing segment, where the company seeks to earn income by exploiting location or product price differentials.