Oneok Is Undervalued: High Cash Flow, Growing Dividend and a Path to Deleveraging

Hook / Thesis

Oneok (ticker: OKE) looks mispriced today. The market is assigning a lower multiple to the stock even as the business continues to generate strong operating cash flow, raise the quarterly distribution, and make modest financing moves consistent with deleveraging. At the current share price around $73.50, Oneok yields roughly 5.6% on the trailing quarterly dividend run-rate and produces more than enough operating cash flow to cover the payout while funding investing needs.

This is a trade that blends income, value and optional upside from multiple catalysts. Entry now gives you a double benefit - an elevated cash yield while the company methodically repairs leverage and benefits from improving natural gas and NGL fundamentals. I recommend a tactical long with a clearly defined stop and staged targets for traders who want exposure to midstream but with concrete risk controls.

Business overview - why the market should care

Oneok is a diversified midstream service provider focused on natural gas gathering, processing, storage and transportation, plus natural gas liquids (NGL) transportation and fractionation. Its operations are concentrated in the midcontinent, Permian and Rocky Mountain regions - areas that have been central to the U.S. production build-out and LNG export growth.

Why does that matter? Midstream companies make money by capturing toll-like fees and by leveraging logistics assets into growing demand for domestic and international gas and NGL flows. For an investor, the attraction is predictable cash generation, high free cash flow conversion in good commodity cycles, and the ability to return capital via dividends and debt paydown.

What the numbers say - support from the recent filings

• Operating cash flow: In Q2 2025 Oneok reported net cash flow from operating activities of $1,525,000,000. That is the main proof point - cash generation is real and sizable.
• Profitability: Q2 2025 revenues were $7,887,000,000 and net income was $853,000,000, indicating scale and margin resiliency in a midstream footprint.
• Dividend momentum: The company has moved its quarterly dividend to $1.03 per share (most recent declarations dated 07/16/2025 and 10/15/2025). Annualized that is $4.12 per share; at a ~ $73.50 stock price the yield is approximately 5.6%.
• Dividend coverage from cash flow: Basic average shares in Q2 2025 were ~627.2M. Quarterly dividend cash outflow at $1.03 would be roughly $646M (1.03 * 627.2M). With operating cash flow of $1.525B in the quarter, the dividend is covered by ~2.36x by operating cash flow in that period - a comfortable buffer for the payout.
• Capex / investing and financing activity: Q2 2025 investing cash flow was -$814M (capital spending and investments), while net cash flow from financing activities was -$755M. The negative financing cash flow suggests capital returned to shareholders and/or debt paydown rather than new net debt issuance in that quarter.
• Leverage / balance sheet snapshot: Long-term debt at the end of the most recent filing sits around $31.3B with equity attributable to parent ~$21.9B and total assets ~$64.5B. That’s a sizable debt load but it’s consistent with balance-sheet intensive midstream peers and can be managed when operating cash flow stays elevated.

Valuation framing - why this looks like value

The dataset does not provide a market capitalization number, so rather than invent one I frame valuation through cash yields, coverage and the share price move versus recent history. Oneok traded above $100 earlier in the 12-month window and printed one-year highs near ~$108.66. Today the stock sits near $73.50 - roughly a 35% discount from that peak. The stock now pays an annualized $4.12 per share in dividends, implying a cash yield of ~5.6% at current prices.

That yield, combined with the fact that operating cash flow in the last reported quarter was $1.525B (covering the dividend by over 2x even before other cash sources), argues the market is assigning a low multiple to Oneok's cash flow. In other words, you get income while waiting for multiple expansion driven by deleveraging, commodity tailwinds or distribution increases.

If the market re-rates Oneok back toward prior peak levels or toward a healthier multiple for a cash-flow heavy business, the upside is meaningful. Even absent a re-rate, the yield and coverage provide an attractive carry for the next 6-12 months.

Catalysts - what could unlock upside

• Improving natural gas / NGL flow fundamentals - higher volumes through existing pipes and fractionators raise fee-based cash flow.
• Continued dividend increases - management has already lifted the quarterly payout from $0.99 to $1.03, signaling commitment to return capital.
• Steady deleveraging - negative financing cash flow in recent quarters suggests the company can and will use free cash to reduce net debt over time.
• Macro - stronger LNG export activity or colder-than-normal weather in key demand quarters would boost volumes and cash flow.
• Multiple expansion as investors rotate back into yield names - with a 5%+ yield the stock is positioned to benefit from yield-seeking flows if market sentiment normalizes.

Trade idea - actionable plan

Trade direction: LONG (income + value). Time horizon: position - 6 to 12 months. Risk level: medium.

Suggested execution:

• Entry: $72.50 - $75.50 zone. Current last trade in the data is ~$73.47, so entering in this band captures current liquidity.
• Initial stop: $66.00 (roughly 10% below entry midpoint). A break below $66 risks a deeper repricing and warrants exiting to protect capital.
• Target 1 (near-term): $85.00 - reversion into previous multi-month consolidation and a move that reflects partial multiple recovery.
• Target 2 (stretch): $100.00 - retest toward earlier 1-year highs and a larger multiple restoration scenario. This is a 35%+ upside from today's levels and a reasonable stretch objective if catalysts stack up.
• Position sizing guidance: Risk no more than 1.5% of portfolio value to the stop. For example, if risk to stop is ~ $7.50 per share (entry $73.50 to stop $66), then allocate position size so that $7.50 * shares <= 1.5% of portfolio value.

Risks & counterarguments

There are several legitimate reasons the market might keep Oneok’s multiple depressed. Below I list the main risks and a counterargument to the bullish thesis.

• High absolute debt levels: Long-term debt of ~$31.3B is large and interest expense can be meaningful if rates remain elevated. If commodity cash flows deteriorate, leverage could become the overriding concern.
• Commodity and volume risk: Midstream cash flow depends on volumes and spreads. A sustained decline in production or weaker NGL/NG spreads reduces fee-based cash and could force dividend cuts or halt deleveraging.
• Capital allocation mis-steps: If management pursues aggressive M&A or makes large capital commitments that are not immediately cash accretive, free cash available for dividends/debt paydown could shrink.
• Market sentiment and interest rates: High-yielding infrastructure names are sensitive to rate volatility. If rates spike and risk premium widens, Oneok could re-rate lower irrespective of operating cash flow.
• Regulatory / pipeline-specific events: Operational incidents, take-or-pay disputes or adverse regulatory rulings could reduce cash flows or increase capital spending unexpectedly.

Counterargument: The market may be rationally pricing structural long-term risks for the midstream sector. If persistent lower demand or longer-lived price compression reduces throughput for several quarters, Oneok’s elevated dividend could become unsustainable. In that scenario the prudent trade is to stay away until clearer signs of durable throughput growth or more rapid deleveraging are visible.

What would change my mind

• If operating cash flow meaningfully weakens - e.g., two consecutive quarters of operating cash flow below $700-800M - that would force a downgrade of the thesis because it undermines dividend coverage and deleveraging plans.
• If management announces an unexpected large acquisition funded with significant incremental debt without an immediate path to improve EBITDA coverage.
• Conversely, faster-than-expected net debt reduction and another dividend raise would push me to increase the position and/or tighten the stop.

Conclusion

Oneok is a classic midstream combo: it generates cash, pays a healthy dividend, and sits on a balance sheet that can be repaired gradually. The recent quarterly metrics show operating cash flow of $1.525B and a declared quarterly dividend of $1.03 (annualized $4.12), giving investors a ~5.6% yield at present prices with solid coverage from cash flow.

I assign a positive, tactical long stance: enter in the $72.50 - $75.50 range, initial stop $66, targets $85 and $100 depending on catalyst progression. The trade is not without risk - leverage, commodity flows and rate-driven re-ratings are real threats - but the combination of income plus cash-flow-backed optional upside makes Oneok attractive at current levels.

Disclosure: This write-up is a trade idea, not personalized investment advice. Use stops and position sizing to manage risk.

Key data points cited (from filings):