This magnificent high-yielding dividend stock makes $5.9 billion in acquisitions to supercharge its growth engine

One ok (Okay 2.45%) it has done a magnificent job, paying dividends over the years. The pipeline giant has delivered over a quarter century of dividend stability and growth. While it hasn’t raised its payout every year, it has grown its dividend at a rate of more than 150% over the past decade.

The pipe stock it is now adding even more fuel to grow high yield dividend (recently around 4.5%). It is making two acquisitions to improve its footprint, cash flow and ability to return cash to investors. This will make it an even more attractive investment for those looking for a growing income stream.

Analyzing offers

Oneok has agreed to a number of deals with a major global infrastructure investor Infrastructure Partners (GIP). Buys GIP’s 43% stake in a pipeline company EnLink Midstream (ENLC -0.28%) for $3 billion in cash. Its also paying $300 million in cash for 100% interest in the managing member. The deal values ​​EnLink at $14.90 per share, a 12.8% premium to its closing price on Aug. 27, the day before the deal was announced. In addition, Oneok is buying Medallion Midstream from GIP for $2.6 billion in cash.

The pipeline giant plans to close these transactions early in the fourth quarter. Following the closing of the transaction for GIP’s interest in EnLink, Oneok intends to pursue the acquisition of publicly traded EnLink shares in a tax-free transaction (ie, a stock-based acquisition). EnLink is currently valued at $12.3 billion enterprise value.

The transformational transactions will create a fully integrated, large-scale platform in the Permian Basin. The offerings will also expand and expand their footprint in the Midcontinent, North Texas and Louisiana regions. The acquisitions will further diversify the company’s business mix. Oneok will derive 35% of its revenues from natural gas liquids, 29% from gathering and processing, 27% from crude oil and refined products and 9% from gas pipelines.

EnLink also has a growing carbon dioxide transportation business that supports carbon capture and storage projects. The combined company expects to generate about $8 billion annually EBITDA. That’s up from about $6.2 billion this year and double that before its merger with Magellan last year.

Very attractive deals

Oneok expects the initial cash purchases of $5.9 billion to be immediately accretive to earnings per share and free cash flow. The deals are expected to grow their earnings per share by an average of more than 5% annually between 2025 and 2028, while growing their cash flow per share by more than 15% during that period. It expects to capture combined synergies of $250 million to $450 million within three years of the transactions closing. Meanwhile, there is potential for it to more than double based on other synergy opportunities it has identified.

The highly attractive nature of the transactions further supports Oneok’s capital allocation strategy. The company keep expecting it to be returns 75% to 85% of its free cash flow after capital expenditures to shareholders over the next few years. That supports its goal of increasing its dividend by 3% to 4% annually and buying back $2 billion of its stock over the next four years.

The company plans to use the remaining excess free cash to strengthen its already strong balance sheet. Oneok expects to end this year with a 3.9 leverage ratio after concluding the contracts with GIP. Leverage is expected to steadily decline toward its long-term target of 3.5 during 2026 as it grows earnings and repays debt.

Value-enhancing transactions

Oneok has developed a knack for making strong acquisitions in recent years. It follows last year’s merger of Magellan Midstream with acquisitions of Medallion Midstream and a significant stake in EnLink. These transactions will further enhance its scale, footprint and free cash flow. This will give the midstream giant more fuel to continue growing its dividend in the coming years, further boosting its total return potential. These characteristics make it a compelling stock to buy for income and growth.