Oneok: Collect a 4.4% Yield and Target $112.70 - A 20% Upside Trade Plan

Hook / Thesis

Oneok (OTE: OKE) is offering an attractive income entry at roughly $93.90 with a 4.4% cash yield while trading at a sensible valuation for a midstream name: 16.7x earnings and 12.5x EV/EBITDA. Management reported stronger Q1 results and raised guidance, and the company is funding $2.7-3.2 billion of expansion projects into 2028 that should push volumes and fee-based cash flow higher. For investors who want yield plus upside, a long trade at $94.00 with a target of $112.70 and a stop at $84.00 lines up as a pragmatic income-plus-growth idea.

Why the market should care

Oneok is not a commodity bet. It is fundamentally a fee-based midstream business that gathers, processes, fractionates, transports and stores natural gas and natural gas liquids (NGLs). The company's segments - Natural Gas Gathering & Processing, NGLs, and Natural Gas Pipelines - earn durable fees from producers and end users. That structure produced solid cash flow: free cash flow was $2.242 billion last reported, supporting a $1.07 quarterly dividend ($4.28 annualized) and a ~4.4% yield.

Recent operational momentum is tangible: the company reported Q1 2026 results showing 12% net income growth and 13% adjusted EBITDA growth, and raised full-year 2026 guidance while outlining $2.7-3.2 billion in expansion projects through 2028. Those projects add growth optionality while the underlying business remains largely insulated from crude-price swings because of its contracted or fee-heavy model.

Quick look at the numbers

Valuation framing

At $93.90, Oneok sits at ~16.7x trailing earnings and about 12.5x EV/EBITDA. For midstream companies that combine long-term contracts, take-or-pay arrangements and fee-based pipelines, an EV/EBITDA in the low-to-mid teens is consistent with a conservative growth outlook. Oneok's free cash flow of $2.24B supports the dividend and funds a meaningful portion of expansion capex without immediate equity dilution, which helps explain why the market assigns a mid-teens multiple today.

Put differently: the market is willing to pay for steady, contract-like cash flows but is rightly discounting leverage (debt/equity 1.53) and execution risk on projects. A modest rerating to ~19x P/E or ~14.5x EV/EBITDA over the next 6-9 months, combined with organic free cash flow growth from projects, gets us to the $112.70 target without needing an improbable multiple expansion.

Trade plan (actionable)

• Entry: Buy at $94.00. The stock is currently trading around $93.90; use $94.00 as a clean tactical entry.
• Target: $112.70. This is a ~20% upside from the $94.00 entry and implies a reasonable multiple expansion plus the midstream growth trajectory from announced projects.
• Stop: $84.00. A stop at $84.00 protects capital if the market re-prices the sector or if project execution materially weakens; it sits below the 50-day SMA ($88.19) and gives the trade room through short-term noise.
• Horizon: Long term (180 trading days). Rationale: project ramp and the interplay of dividends + earnings growth typically take multiple quarters to show up materially in valuation. A 180-trading-day window gives time for announced projects to progress, for the company to deliver on guidance, and for the broader market to appreciate the combination of yield and growth.

Catalysts that can drive the trade

• Project commercialization and volume ramps - as the $2.7-3.2B expansion projects come online through 2028, higher utilization and fee revenues should lift adjusted EBITDA and FCF.
• Upward guidance revisions - management already raised 2026 guidance post-Q1; another positive revision would validate the growth thesis.
• Dividend stability and modest increases - management is targeting 3-4% annual dividend growth, which supports multiple expansion for yield-seeking buyers.
• Sector re-rating - if investors shift back towards income and stable cash flows amid macro uncertainty, midstream valuations could recover from compressed levels.

Risks and counterarguments

Every trade has downside; here are the primary risks and a balanced counterargument to the bullish thesis.

• Interest-rate sensitivity: Oneok is yield-bearing and levered; rising rates can compress midstream multiples and increase interest expense on floating-rate debt, pressuring FCF and the share price.
• Leverage and balance sheet: Debt/equity sits at 1.53. If earnings disappoint or capex overruns occur, management may face tougher choices on dividends or additional financing.
• Project execution risk: The $2.7-3.2B of planned projects add growth optionality but carry construction, timing and volume-forecast risk. Delays or cost inflation would dent upside.
• Regulatory or contract risk: Midstream assets depend on access, permits and long-term contracts. Any material change in contract terms, pipeline tariffs, or regulatory environment could reduce cash flow visibility.
• Commodity downturn effect on volumes: While Oneok's revenue is more fee-based, sustained declines in upstream activity could weigh on volumes and utilization across gathering and fractionation businesses.

Counterargument: Bulls point to contract heaviness and steady distributions; bears argue that high leverage and macro-driven multiple contraction make current yields safer than the equity. In other words, the stock could behave more like a bond if growth disappoints. If you believe the market is going to re-price midstream multiples lower across the board, the dividend may not fully offset price depreciation and a capital loss could occur even though cash distributions remain intact.

What would change my mind

I'll reconsider the bullish stance if any of the following occur:

• Material deterioration in free cash flow - a sustained drop below ~$1.5B FCF would call dividend sustainability into question and force multiple compression in my view.
• Project cost overruns or multi-quarter delays that push commercial online dates materially later than the guidance window.
• Loss of key long-term contracts or adverse regulatory rulings that threaten pipeline tariffs or throughput arrangements.

Execution notes & position sizing

This trade is classed as medium risk: it combines an above-average yield and leverage. Position size should reflect that: consider allocating no more than a modest portion of an income-growth sleeve (e.g., 3-6% of portfolio depending on risk tolerance). Use the $84.00 stop to limit downside and reassess on any stop-trigger event — a stop-out should be followed by a fundamental review, not a blind re-entry.

Conclusion

Oneok offers an attractive combination of yield and potential capital appreciation. At $93.90 the stock yields roughly 4.4% and trades at reasonable midstream multiples given its free cash flow generation of $2.242B. With announced expansion projects and recent beats that prompted guidance raises, a targeted move to $112.70 over a 180-trading-day window is attainable if management continues to execute and the market gives modest multiple support.

That said, keep an eye on leverage, project execution and interest-rate sensitivity. If those factors deteriorate materially, the stop at $84.00 should help preserve capital while you re-evaluate. For an investor who wants income today and a realistic path to 20% upside, this trade balances yield, cash-flow support and upside catalysts in a pragmatic package.

Key dates to note

• Ex-dividend date: 05/04/2026
• Dividend payable date: 05/15/2026
• Recent Q1 results and guidance update: 05/01/2026

Trade parameters: Entry $94.00 | Target $112.70 | Stop $84.00 | Horizon: long term (180 trading days)