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Blue Chip Stocks In Focus: ONEOK, Inc.

Master limited partnerships – or MLPs, for short – are some of the most tax-efficient vehicles for investors looking to generate portfolio income in a taxable investment account.

Accordingly, these securities are often sought by retirees and other yield-hungry investors.

The sheer number of master limited partnerships today means that high-yield investors can create plenty of diversification using MLPs alone. You can see the full list of all 100+ publicly traded MLPs here.

With that said, there are some notable differences between investing in MLPs versus common stocks that investors should keep in mind.

One occurrence that sometimes affects MLPs is an acquisition by their general partner.

An MLP’s general partner is a part-owner of the business whose employees actually operate the MLP’s assets (since MLPs themselves technically have no employees).

This leaves the MLP’s investors to determine whether the general partner makes an equally appealing investment as the MLP did prior to the acquisition, since these acquisitions are typically completed on a stock-for-stock basis.

One recent example of this phenomenon is ONEOK Partners (OKS), which was recently acquired by its general partner ONEOKE Inc. (OKE).

This transaction created many new owners of ONEOK Inc. that previously held the publicly-traded units of ONEOK Partners. This, in turn, has created curiosity about the long-term investment prospects of ONEOK Inc.

ONEOK Inc. fits our description of a blue chip stock – a company with:

  • 100+ year operating history and
  • 3%+ dividend yield

Previous ONEOK Partners investors should appreciate ONEOK’s status as one of the few blue chip stocks – these companies are established, and generally, appeal to conservative investors seeking income. You can see the full list of blue chip stocks here.

With the previous owners of ONEOK Partners in mind, this article will analyze the investment potential of ONEOK Inc. in detail and determine whether previous unitholders of ONEOK Partners should hold the stock or look elsewhere for an MLP alternative.

Business Overview

ONEOK Inc. was previously a holding company whose main ownership interest was the general partner and a 41.2% total interest of ONEOK Partners.

After the acquisition of ONEOK Partners, ONEOK Inc. (hereafter referred to as ONEOK) is an extensive midstream energy corporation with a wide base of assets across the United States.

In total, ONEOK owns and operates a 37,000-mile network of pipelines that transfers natural gas and natural gas liquids (NGLs) from suppliers in attractive energy basins to refineries for development. A map of ONEOK’s asset base can be seen in the following diagram.

Source: ONEOK Inc. May 2017 Investor Update, slide 9

ONEOK is listed on the New York Stock Exchange under the ticker OKE and has a current market capitalization of $24.5 billion, making it quite large relative to other energy MLPs such as Genesis Energy (GEL) or Buckeye Partners (