A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. In the past 6 years Phillips 66 (NYSE:PSX) has returned an average of 3.00% per year to investors in the form of dividend payouts. Should it have a place in your portfolio? Let’s take a look at Phillips 66 in more detail. See our latest analysis for Phillips 66
Here’s how I find good dividend stocks
If you are a dividend investor, you should always assess these five key metrics:
- Is it the top 25% annual dividend yield payer?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- Is it able to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does Phillips 66 pass our checks?The company currently pays out 27.57% 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 37.34%, leading to a dividend yield of 2.83%. However, EPS is forecasted to fall to $7.11 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider 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. In terms of its peers, Phillips 66 has a yield of 2.49%, which is on the low-side for Oil and Gas stocks.
Taking all the above into account, Phillips 66 is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. 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. There are three important aspects you should look at:
- 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.
- 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.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.