These 2 High-Yield Stocks Are Adding More Fuel to Their Dividend Growth Engines

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Energy giants Phillips 66 (NYSE: PSX) and Plains All American Pipelines (NYSE: PAA) are both attractive options for income-seeking investors. Each pays a well-above-average dividend -- Phillips 66 currently yields 4.2% while Plains All American's payout is at 6.2% -- that it supports with a strong financial profile. Further, both companies have increased their dividends sharply in the past year. Phillips 66 boosted its payout 12.5% while Plains All American gave its investors a monster 20% raise for 2019.

Those payouts will likely head even higher in the coming years, as both companies recently approved the construction of some new oil pipeline projects. That makes them even more compelling stocks for yield seekers to consider.

A person putting a block with an upward arrow on a stack of rising blocks.
A person putting a block with an upward arrow on a stack of rising blocks.

Image source: Getty Images.

Liberating oil from the Rockies

Refining giant Phillips 66 has invested in several oil pipeline projects over the past few years. That's part of the company's strategy to not only increase the flow of cheaper North American oil to its refineries but increase the percentage of its earnings that come from more stable midstream assets. This approach has enabled Phillips 66 to steadily grow its cash flow, which has helped fuel impressive dividend growth. Overall, the refining and midstream company has increased its payout nine times since its formation in 2012, growing it at a 25% compound annual rate over that timeframe.

Phillips 66 is continuing this strategy by partnering with privately held Bridger Pipeline to build the Liberty Pipeline. This project includes the construction of a new oil pipeline from the Rockies and Bakken production areas to the nation's largest oil storage hub in Cushing, Oklahoma. From there the oil can flow through other pipelines to refining and export markets along the Gulf Coast. The companies expect to finish the $1.6 billion pipeline as early as the first quarter of 2021.

In commenting on the project, Phillips 66's CEO Greg Garland stated:

The Liberty Pipeline presents us with a great opportunity to serve producers in the growing Bakken and Rockies production areas. The pipeline adds to our integrated infrastructure network that serves the key shale oil producing regions with connectivity to major Gulf Coast market centers. Our pipeline network has strategic alignment with our Central Corridor and Gulf Coast refineries, further enhancing value across our assets.

Not only is the pipeline an excellent strategic fit for Phillips 66, but it will generate steady cash flow once it starts service since customers will ship oil under long-term, fee-based contracts. That will provide the company with some incremental cash flow to support continued dividend growth.