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Piped Into Oneok

ONEOK Partners (OKS: Nyse) has been the most lucrative of our handful of energy midstream Master Limited Partnerships (MLPs). Originally recommended two-and-a-half years ago as a low-risk, total-return play, OKS has returned a solid 140% capital gain over and above its attractive yield. OKS remains a Buy, however, as confirmed by the firm’s just-released Q4 earnings.

ONEOK Partners is a well-positioned midstream MLP that focuses on natural gas and natural gas liquids. Its services include storage, fractionation and pipeline transportation of gas and liquids. Although natural gas prices have fallen, it has not hurt the operations at ONEOK as their services are primarily non-discretionary and most of the income is fee based. The company operates in six different gas regions and has over 2,000 contracts in force, so it has a very diverse mix of assets and customers.

ONEOK reported a solid fourth quarter. Earnings per share for this MLP more than doubled, to $1.26 from just $0.54 a year ago. All-important Distributable Cash Flow (DCF) rose by 89% compared to the final quarter of 2010, to reach $321.3 million. DCF for the full year 2011 was $941 million, a 61% year-over-year increase.

While natural gas prices hurt profits at the natural gas operations, strong increases in gas liquids storage and transportation more than offset the price weakness. Income from equity investments was also up sharply in the quarter. Income in the natural gas liquids segment of the business better than tripled for the quarter.

The partnership also raised its guidance for 2012. Net income guidance was raised from a range of $780 to $800 million, to $810 to $870 million. DCF is expected to be $925 to $985 million, up from the previous guidance of $845 to $915 million. Management also expects shareholder distributions per unit to rise by $0.025 per unit during 2012. The company further announced a 2-for-1 stock split that will be implemented after a vote at the annual meeting in May. The anticipated date of the spilt is May 24,2012.

We have owned ONEOK since mid 2009, and see no reason to change our Buy rating now with fundamentals still looking so strong. Technicals for OKS remain very positive as well, and despite the more than doubling in price of OKS over the past two years, insiders also continue to hold tight to their holdings.

While OKS’ indicated yield of just over 4% is less than half what it was when we entered this position, this name continued to be a good low-risk, total-return play for investors looking for such an investment.

To view OKS’ insider history, Click Here.

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