By Brian Nelson, CFA
Refiner and High Yield Dividend Newsletter portfolio idea Phillips 66 (PSX) declared on April 3 a quarterly dividend of $1.15 per share on its common stock, reflecting a 10% payout increase. Management had the following to say about the payout hike:
The dividend increase reflects the confidence we have in our growing mid-cycle cash flow generation and disciplined approach to capital allocation, including a secure, competitive and growing dividend.
Since our formation in 2012, we have steadily raised our dividend, resulting in a 16% compound annual growth rate. We are well-positioned to continue delivering significant shareholder value through the successful execution of our strategic priorities, including returning $13 billion to $15 billion to shareholders through dividends and share repurchases between July 2022 and year-end 2024.
As we wrote in our latest earnings write-up: Though crack spreads can be quite volatile at times, there’s a lot to like about Phillips 66. The company is targeting 2025 mid-cycle adjusted EBITDA of $14 billion, up from $10 billion in 2022. Cost savings should remain ongoing, with its target calling for a total of $1.4 billion in savings, implying the company has $200 million more in savings to go.
We like its investment-grade (A3/BBB+) balance sheet and target for 2025 mid-cycle adjusted operating cash flow of $10+ billion, up from $7 billion in 2022, with expectations that it will return more than half of operating cash flow to shareholders. Phillips 66 continues to be a quality income idea for investors seeking exposure to the energy space.
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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