6. ONEOK, Inc. (NYSE:OKE)
Number of Hedge Fund Holders: 34
Cramer said that he recommended ONEOK, Inc. (NYSE:OKE) stock previously and likes oil and gas pipeline operators for various reasons, including dependence on volume, limited players in the industry, and great dividend yields.
“What else passed through the YEV test? ONEOK, which is a pipeline play that I absolutely adore. Now, I recommended this one late last year, and it’s up more than 40% since then. I like the oil and gas pipeline operators in general because they’re like toll roads that depend solely on volume, not the underlying price of the commodities in question. Plus, it’s so hard to get regulatory approval to build new pipelines that we’ve got a severe shortage in this country. At the same time, we’re both producing and exporting record levels of oil and gas here, which means more demand for ONEOK.
The other great thing about the pipeline play is that they tend to have terrific dividend yields. Even after ONEOK’s huge run over the past ten months, this thing’s still got a 4.18% yield here, still superior to the tenure. And it’ll get even better as long as long rates come down, which is inevitably what happens when the Federal Reserve cuts short rates. ONEOK also regularly raises its dividend. They target 3% to 4% annual growth for the payout… Unlike most pipeline plays, ONEOK is organized as a traditional C corp, a normal business, and not an MLP or mass limited partnership. And that makes for a cleaner governance structure.”
Cramer noted that the company, which traditionally concentrated on natural gas and natural gas liquids infrastructure, acquired a well-liked company last year, resulting in a more balanced portfolio.
“ONEOK used to exclusively focus on infrastructure for natural gas and natural gas liquids, but then shelled out $18.8 billion for a company we liked very much when we had money, called Magellan Midstream Partners last year. Now they’re more balanced, though still with a natural gas lean. I like that, too, because the big opportunity in energy exports for this country is in LNG, liquified natural gas.
Overall, ONEOK is just another good, solid energy infrastructure play with an outsized payout, which will look even better once rates start inevitably falling again, something I still expect, even as long rates have counterintuitively been kind of creeping up higher since the Fed September meeting. It’s also a great option for someone who wants energy exposure but doesn’t want to gamble on oil and gas prices with a multi-front war happening in the Middle East.”
ONEOK (NYSE:OKE) operates in the essential sectors of gathering, processing, fractionating, storing, transporting, and marketing natural gas and natural gas liquids (NGL) across the United States. The company is currently in the process of acquiring significant assets to strengthen its market presence and increase cash flow, ultimately aiming to provide better returns for investors.
Recently, it announced a series of transactions with Global Infrastructure Partners (GIP), a prominent infrastructure investor. It involves purchasing GIP’s 43% stake in EnLink Midstream for $3 billion in cash, along with acquiring 100% of the managing member interests for an additional $300 million. As per the deal, the valuation of EnLink stood at $14.90 per share.
Additionally, ONEOK (NYSE:OKE) plans to acquire Medallion Midstream from GIP for $2.6 billion in cash. The transactions are expected to be completed in the early part of the fourth quarter. Following the acquisition of GIP’s interest in EnLink, the company intends to pursue acquiring publicly traded shares of EnLink in a tax-efficient manner, specifically through a stock-based acquisition.
These transformative deals are set to establish a comprehensive, large-scale platform in the Permian Basin, significantly boosting the company’s operational footprint in key regions including the midcontinent, North Texas, and Louisiana. The company’s business model will also become more diversified as a result. Post-acquisition, ONEOK (NYSE:OKE) forecasts that 35% of its earnings will stem from natural gas liquids, 29% from gathering and processing, 27% from crude oil and refined products, and 9% from gas pipelines.
With an initial outlay of $5.9 billion for these acquisitions, the company expects immediate positive impacts on its earnings per share and free cash flow. It projects an average annual increase in earnings per share of over 5% from 2025 to 2028, alongside a more than 15% rise in free cash flow per share within the same timeframe. Furthermore, it estimates the potential to realize combined synergies ranging from $250 million to $450 million within three years of finalizing the deals.
