We’ve Almost Doubled Our Money On This Stock (And It STILL Yields 7%)


For the past few weeks, I’ve been telling our readers a simple message. In fact, I’ve actually been saying this for years…

Successful long-term investing doesn’t have to be as complicated as it might seem. And if you’re an income-minded investor, don’t fall victim to the idea that all the “good” high yields are gone.

We all know that interest rates are at record lows. They’ve been like that for years. But over at High-Yield Investing, we’ve been able to find high, solid, sustainable yields in just about any market.

I will say this, however… Sometimes, in order to capture these higher yields, you need to be both patient and opportunistic.

You see, investing is a marathon, not a sprint. When you find a company that offers a compelling opportunity, it can pays to hold on to it for a long time. That’s why some of our holdings have been in our portfolio since 2011, 2007, and even 2005

But by the same token, we know that when prices go down, yields go up. So when you see a company that’s built up a long track record of rewarding shareholders year after year go on sale, it pays to take advantage and act decisively.

That’s exactly what we did during the selloff in the spring of 2020, when the Covid-19 pandemic swept the country and sent markets into a freefall. While other investors panicked, we took full advantage of the chaos and loaded up on solid income payers that were trading at cheap discounts and offering incredible yields.

Fortunately for us, many of those positions are well past their pre-Covid highs, and now we have the benefit of having locked in some very high yields to boot. Some, on the other hand, have delivered some nice gains – but still offer elevated yields to this very day.

Today, I want to tell you about one of those stocks: Oneok (NYSE: OKE). It serves as a perfect counterexample to investors who think all the good high yields are gone in today’s market…

After A Huge Rebound, This Stock STILL Yields 7%

Pronounced “One Oak”, this is one of the nation’s premier midstream energy companies. Oneok is involved with the transportation, processing, and storage of various raw and refined commodities. It has little exposure to crude oil and is primarily paid to gather and process natural gas. The company also helps feed natural gas liquids (NGLs) via pipeline to new petrochemical plants opening on the Gulf Coast.

For most of 2019 and early 2020, the stock bounced in a narrow band between $65 and $75 per share. But with the global pandemic depressing energy demand, OKE fell off a cliff, tumbling below $30.

It has since rebounded into the mid-$50s, but remains undervalued. Today’s investors can lock in an enticing yield of close to 7%.

But is the payout safe? Well, 90% of the firm’s cash flows are tethered to fixed contracts that have already been signed and sealed. The rest of the limited exposure is protected by hedging.

That’s not to say that Oneok hasn’t felt the pinch of falling commodity prices, which have prompted many producers to throttle back on their output. That’s particularly true in the Williston Basin/Bakken Shale region of North Dakota and Montana.

Producers in this fertile oil field (the nation’s second-largest shale play) curbed their output by 500,000 barrels per day in May following tumbling prices at the onset of the pandemic. And just when they were beginning to come back online, a federal court dealt a legal blow to the Dakota Access Pipeline (a critical conduit that carries nearly half of all Bakken crude to refineries in the Midwest).

Since natural gas is commonly produced as a byproduct of oil, the Bakken slowdown took a bite out of Oneok’s business. But that’s all in the past. The company reports that NGL volumes across all of its operating regions have now exceeded pre-pandemic levels. And its Rocky Mountain processing plants are running at full steam, handling 1.2 billion cubic feet per day.

The natural gas pipelines, gathering/processing, and liquids segments all posted sharp sequential improvements in EBITDA last quarter.

Distributable cash flows hit $540 million company-wide, a healthy increase of 12% from the same period last year. Incidentally, that was enough to cover dividends with $125 million to spare – for a comfortable coverage ratio of 130%.

Action To Take

Oneok isn’t fully out of the woods just yet. But the country is growing increasingly reliant on natural gas, and Oneok owns vital gathering, processing, and transportation infrastructure that supported eleven straight quarterly dividend hikes before Covid interrupted.

The rebound in volumes across the firm’s network is reassuring, as is the fact that Oneok has $447 million in cash and an undrawn $2.5 billion line of credit. Even better, Oneok is structured as an ordinary corporation rather than a partnership. That means it issues a simplified 1099 tax statement instead of the dreaded K1.

Aside from that, here’s the main takeaway…

When we added OKE to the High-Yield Investing portfolio back in March, things weren’t looking pretty. But because we saw quality where others didn’t, we were able to lock in a 13% yield on our entry cost. That’s a once-in-a-generation opportunity.

The fact that it still offers a yield of 7% today should be pretty compelling for just about any investor. And there are plenty more examples like OKE out there in this market – if you know where to look…

In fact, I just released a report about five “bulletproof” dividends that investors can still buy today and lock in yields above 5%. These are some of the strongest, most reliable, and generous income payers I’ve ever seen.

You can go here to learn more.

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