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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Phillips 66 (NYSE:PSX) has returned to shareholders over the past 6 years, an average dividend yield of 3.00% annually. Does Phillips 66 tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. Check out our latest analysis for Phillips 66
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
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Is its annual yield among the top 25% of dividend-paying companies?
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Does it consistently pay out dividends without missing a payment of significantly cutting payout?
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Has dividend per share risen in the past couple of years?
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Is it able to pay the current rate of dividends from its earnings?
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Will the company be able to keep paying dividend based on the future earnings growth?
How does Phillips 66 fare?
The company currently pays out 27.87% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 37.69%, leading to a dividend yield of 2.74%. However, EPS is forecasted to fall to $7.52 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Phillips 66 as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Compared to its peers, Phillips 66 produces a yield of 2.41%, which is on the low-side for Oil and Gas stocks.
Next Steps:
Whilst there are few things you may like about Phillips 66 from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three essential aspects you should further examine:
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Future Outlook: What are well-informed industry analysts predicting for PSX’s future growth? Take a look at our free research report of analyst consensus for PSX’s outlook.
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Valuation: What is PSX worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether PSX is currently mispriced by the market.
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Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.