Whether it’s through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you’re an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company’s earnings paid out to shareholders; it’s often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Phillips 66 in Focus
Phillips 66 (PSX) is headquartered in Houston, and is in the Oils-Energy sector. The stock has seen a price change of 18.19% since the start of the year. The oil refiner is paying out a dividend of $0.8 per share at the moment, with a dividend yield of 2.68% compared to the Oil and Gas – Refining and Marketing industry’s yield of 1.66% and the S&P 500’s yield of 1.78%.
In terms of dividend growth, the company’s current annualized dividend of $3.20 is up 17.2% from last year. Over the last 5 years, Phillips 66 has increased its dividend 5 times on a year-over-year basis for an average annual increase of 15.98%. Any future dividend growth will depend on both earnings growth and the company’s payout ratio; a payout ratio is the proportion of a firm’s annual earnings per share that it pays out as a dividend. Phillips 66’s current payout ratio is 49%, meaning it paid out 49% of its trailing 12-month EPS as dividend.
PSX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $7.81 per share, which represents a year-over-year growth rate of 78.31%.
Bottom Line
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.
For instance, it’s a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It’s more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, PSX presents a compelling investment opportunity; it’s not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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