Last update on 2024-06-27

Phillips 66 (PSX) - Dividend Analysis (Final Score: 7/8)

Analyze Phillips 66 (PSX) dividend performance with an 8-criteria scoring system, final score: 7/8. Insights on yield, growth rate, payout ratio, and more.

Short Analysis - Dividend Score: 7

We're running Phillips 66 (PSX) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Phillips 66 (PSX) scored 7 out of 8 in an evaluation of its dividend policy based on several criteria. It has a higher than average industry dividend yield at 3.15%, pays sustainable dividends with an annual payout ratio of 27.66%, and has decent earnings coverage. However, it displays inconsistent dividend growth, faces challenges in covering payouts with cash flow in certain years, and has a dividend history of just over a decade rather than 25 years. Their stock buybacks have been steady, which benefits shareholders.

Insights for Value Investors Seeking Stable Income

Overall, Phillips 66 looks appealing for dividend-focused investors, owing to its relatively high yield and solid dividend practices. However, due to inconsistencies in dividend growth and cash flow coverage, it's important to watch for variability over the years. Until the company provides a more stable performance, it would be prudent to invest cautiously and keep a close eye on its financial health.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield indicates the ratio of a company's annual dividend compared to its share price, a critical metric for dividend investors.

Currently, Phillips 66 (PSX) has a dividend yield of 3.1546%, which is notably higher than the industry average of 2.84%. Historically, the company started paying dividends in 2012 with a yield of 0.8475% and has shown growth over the years. For instance, in 2020, the yield peaked at 5.1473%. Such a trend could attract dividend-focused investors. The high yield, relative to the industry average, could signal a well-maintained dividend policy, although it’s essential to note the consistency in payouts and the company’s overall financial health to sustain such yields. This suggests a positive trend for dividend seekers in the short term.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate reflects the growth in dividends paid to shareholders over specific periods. A growth rate higher than 5% is considered strong and indicates the company’s capability to increase its shareholder returns.

Examining the dividend per share ratios for Phillips 66 over the period from 2009 to 2023, we see significant fluctuations, including years with no dividends and some with negative growth. Notably, the dividend per share ratio started at zero in the initial years and saw a stark jump such as in 2013 with a 195.33% increase. Despite the average dividend ratio being approximately 21.88%, it is important to consider the consistency and reliability of these increases. The volatile and occasionally negative values may point towards an unstable dividend policy or external economic factors impacting the business. Hence, while the average growth rate appears to surpass the 5% threshold, the irregularity is concerning for long-term sustainability. This inconsistency limits the confidence in the dividend growth trend being classified as wholly positive.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average Payout Ratio (lower than 65%) indicates a sustainable dividend policy being maintained.

Based on the provided data, Phillips 66 (PSX) has an average payout ratio of approximately 27.66% over the past 14 years, which is well below the 65% threshold. This is a good trend as it signifies that the company is maintaining a sustainable dividend policy, staying within a healthy range. However, it's important to note that in certain years like 2016 and 2020, the payout ratio was extremely high (104.99 % and -39.80 %, respectively). These instances mark significant deviations due to extraordinary circumstances, likely impacting the company's overall financial health. Despite these anomalies, the average being well within the acceptable range reflects a capacity for consistent and manageable dividend payments.

Dividends Well Covered by Earnings?

Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share, which indicates profitability. Dividend per share (DPS) is the portion of earnings distributed to shareholders. For dividends to be sustainable, EPS should comfortably cover DPS, ideally by a good margin, indicating the company is generating enough profit to maintain or grow its dividend payouts.

Analyzing the historical data for Phillips 66 (PSX), EPS has experienced significant volatility over the years. For instance, EPS ranged from 0.7438 in 2009 to as high as 23.3808 in 2022. The years 2015 and 2020 showed significant declines with EPS dropping to 7.7279 and -9.0438, respectively, indicating potential difficulties during these periods. On the other hand, DPS exhibits a notably steady increase, reflecting the company’s commitment to returning value to shareholders. The dividend per share has grown from 0 in 2009 to 4.2 in 2023. Regarding the ratio of dividends covered by earnings, a number over 1 is ideal. However, PSX had negative figures in this aspect during 2020 (owing to negative earnings), while 2016 and 2021 exhibited favorable ratios of 1.0499 and 1.2113, respectively. Overall, despite occasional bumps, the trend shows that Phillips 66 often covers its dividends through its earnings, demonstrating a generally healthy dividend sustainability. This rising trend in DPS, coupled with variable but often sufficient EPS, indicates semi-stable to improving profitability with reasonable fiscal health, though attention to profit volatility and occasional years of lower coverage is warranted.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow assesses if a company generates sufficient free cash flow (FCF) to sustain its dividend payments. It's important for financial stability and signals good management.

Phillips 66 exhibits a mixed trend in covering dividends with cash flow from 2009 to 2023. Positive coverage ratios are seen in years such as 2010 (1.50), 2011 (1.88), and 2019 (1.68), indicating strong years when free cash flow significantly exceeded dividend payouts. However, years like 2009 (-0.0) and 2016 (-22.98) show unfavorable coverage, meaning dividends exceeded FCF considerably. The notable negative ratios in 2014 (-4.35) and 2020 (-1.95) also highlight poor financial periods likely influenced by economic factors or operational challenges. In summary, while Phillips 66 has proven its capacity to cover dividends in specific high-profit years, the inconsistency could raise concerns for investors seeking stable dividend reliability and sustainability over long-term periods.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Phillips 66 (PSX) and why it is important to consider

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Dividends Paid for Over 25 Years?

Evaluate whether Philips 66 has maintained a consistent dividend payout for over 25 years, a criterion indicative of a company's long-term financial stability and shareholder commitment.

Phillips 66 (PSX) does not meet the criterion of paying dividends for over 25 years. Their dividend payouts started in 2012, slightly more than a decade ago. However, since the commencement of their dividends in 2012, there has been a consistent increase in dividend payouts, growing from $0.45 per share in 2012 to $4.20 in 2023. This shows strong growth and commitment to returning value to shareholders, but it fails to meet the >25 years of consistent payout mark. This is neither wholly positive nor wholly negative. While the company lacks a long historical track record of payout extending 25 years, the substantial and progressive increase in dividends over the last decade evidences robust financial health and a commitment to enhancing shareholder value in recent history.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over the past 20 years are important as they signal a company's commitment to returning value to shareholders. By reducing the number of outstanding shares, repurchases can increase earnings per share (EPS) and potentially boost the stock price.

Phillips 66 (PSX) has demonstrated a reliable stock repurchase program over the past 20 years, with significant repurchases particularly noted in the years 2012 through 2020 and again in 2023. The reduction in the number of shares from 640 million in 2009 to 450.136 million in 2023 indicates a consistent commitment to buying back shares. On average, the number of shares decreased by approximately 2.41% annually, which is a positive sign for investors as it indicates the company's focus on enhancing shareholder value. However, the slight increase in shares in 2022 should be monitored to ensure it doesn’t signal a shift in repurchase strategy.