Why ONEOK's Strategic Expansion and Strong Earnings Position It as a High-Conviction Buy for Income and Growth Investors

In 2025, ONEOK, Inc. (NYSE: OKE) has emerged as a standout performer in the midstream energy sector, combining robust earnings growth, disciplined capital allocation, and a strategic focus on long-term value creation. For income and growth investors, the company's recent financial results, coupled with its aggressive expansion into natural gas liquids (NGLs) and liquefied petroleum gas (LPG) export infrastructure, present a compelling case for investment.

Strong Earnings and Strategic Acquisitions Fuel Momentum

ONEOK's Q1 2025 earnings report underscored its operational strength. The company reported a net income of $691 million and adjusted EBITDA of $1.78 billion, a 23.8% year-over-year increase. This growth was driven by the full-quarter contribution from the EnLink Midstream acquisition, completed in January 2025, which added $64 million in adjusted EBITDA to the NGL segment and $213 million to the natural gas gathering and processing segment. The acquisition not only expanded ONEOK's footprint in key production basins like the Permian and Rockies but also enhanced its fee-based revenue model, with over 90% of earnings now shielded from commodity price volatility.

Beyond acquisitions, ONEOK's organic growth initiatives are paying off. The company's Rocky Mountain region saw a 15% increase in NGL raw feed throughput and a 7% rise in natural gas volumes processed. These gains reflect the company's ability to leverage existing infrastructure while expanding capacity through projects like the 400,000-bpd LPG export terminal in Texas City, a joint venture expected to generate over $100 million in annual EBITDA by 2026.

Capital Allocation Discipline: A Blueprint for Shareholder Value

ONEOK's 2025 capital allocation strategy is a masterclass in balancing growth and return of capital. The company has allocated $2.8 billion to $3.2 billion in total capital expenditures for the year, with 75–85% directed toward high-return projects such as the Texas City terminal, the Medford fractionator rebuild, and Permian Basin infrastructure upgrades. These investments are designed to generate durable cash flows while aligning with the company's target debt-to-EBITDA ratio of 3.5x by 2026.

Shareholder returns are equally prioritized. Since launching its $2 billion share repurchase program in January 2024, ONEOK has spent $189 million to repurchase 1.865 million shares. Meanwhile, its dividend policy remains conservative yet attractive, with a 4% increase to $1.03 per share in early 2025. Analysts project a 3–4% annual dividend growth rate, supported by a free cash flow yield of ~4.95% and a payout ratio of 78.43%.

Midstream Sector Resilience: Tailwinds and Structural Demand

The midstream sector's durability in 2025 is anchored by three key trends: natural gas demand, LNG export expansion, and regulatory tailwinds.

1. Natural Gas as a Global Commodity: U.S. natural gas production hit 105 billion cubic feet per day in 2025, driven by low-cost shale production and rising demand for power generation and industrial use. ONEOK's extensive pipeline network—over 50,000 miles—positions it to benefit from this growth, particularly in the Permian Basin, where production is expected to outpace domestic demand, boosting exports.
2. LNG Infrastructure Expansion: With the U.S. now the world's largest LNG exporter, ONEOK's Texas City LPG terminal and Mont Belvieu storage facility are critical nodes in the global energy supply chain. These assets capitalize on surging demand from Asia and Europe, where natural gas is a key transition fuel.
3. Regulatory and Policy Support: The Trump administration's pro-energy policies, including expedited LNG permitting and relaxed compliance timelines, have created a favorable environment for midstream operators. ONEOK's focus on fee-based contracts and “take-or-pay” pipelines further insulates it from regulatory risks.

Long-Term Value Creation: Organic and Inorganic Growth

ONEOK's strategy for long-term value creation hinges on organic efficiency gains and inorganic scale expansion. The company expects $250 million in incremental synergies from EnLink and Medallion in 2025, with $870 million projected by 2026. These synergies, combined with cost reductions from automation and digitalization, are expected to boost EBITDA margins by 100–150 basis points over the next two years.

Meanwhile, ONEOK's pipeline of organic projects—such as the full looping of the West Texas NGL Pipeline and the relocation of a natural gas processing plant to the Permian—ensures a steady stream of cash flow. The company's disciplined approach to capital spending—only pursuing projects with high utilization rates and long-term contracts—reduces exposure to cyclical downturns.

Risks and Mitigants

While ONEOK's growth trajectory is robust, investors should remain mindful of its debt load (net debt-to-EBITDA of 4.67x in the trailing twelve months). However, the company's deleveraging plan, including the repayment of $250 million in senior notes in March 2025 and a $3.5 billion credit facility, provides ample liquidity to manage this risk. Additionally, the company's fee-based revenue model and geographic diversification across the Permian, Rockies, and Gulf Coast reduce operational volatility.

Investment Thesis

For income-focused investors, ONEOK's 4.95% yield and 3–4% dividend growth outlook offer a compelling alternative to bond yields. For growth investors, its $8.225 billion adjusted EBITDA midpoint for 2025 and 15%+ EPS growth guidance in 2026 justify a premium valuation. The stock's forward P/E of 16.15x is reasonable given its EBITDA growth trajectory and midstream sector resilience.

Conclusion: ONEOK's strategic acquisitions, disciplined capital allocation, and alignment with structural energy trends position it as a high-conviction buy for both income and growth investors. As the midstream sector navigates a transition toward cleaner energy, ONEOK's integrated infrastructure and fee-based model offer a durable path to long-term value creation. With its Texas City terminal and EnLink integration as key catalysts, the company is well-positioned to deliver consistent returns in a dynamic energy landscape.