PSX: Dividend and Share Repurchase
On May 5, PSX’s board has declared a quarterly dividend of 63 cents per share on Phillips 66 common stock, representing a 12.5 percent increase. The dividend is payable on June 1, 2016, to shareholders of record as of the close of business on May 18, 2016.
Since the formation of Phillips 66 in 2012, the board has increased the dividend six times, representing a 33 percent compound annual growth rate. The forward annual dividend yield is pretty high at 3.20% and the payout ratio is only 33%.
Source: company’s reports *assuming same dividend rate for the year
During the first quarter, Phillips 66 generated $722 million of cash from operations, excluding working capital. Including the impact of working capital, operating cash flow was $258 million. Capital expenditures and investments totaled $750 million.
Phillips 66 returned $687 million to shareholders during the quarter, consisting of $296 million in dividends and the repurchase of 5 million shares of common stock for $391 million. Since July 2012, the company has returned $11.8 billion to shareholders in the form of dividends, share buybacks and share exchange.
PSX: Valuation
Since the beginning of the year, PSX’s stock is down 3.8% while the S&P 500 Index has increased 1.1%, and the Nasdaq Composite Index has lost 4.6%. Since the beginning of 2013, PSX’s stock has gained 48.2%, in this period, the S&P 500 Index has increased 44.9%, and the Nasdaq Composite Index has risen 58.2%.
According to TipRanks, the average target price of the top analysts is at $86.67, an upside of 10.2% from its May 16 close price, however, in my opinion, shares could go much higher.
PSX’s valuation is very good, the trailing P/E is very low at 11.8, and the forward P/E is even lower at 10.8. The price to sales ratio is extremely low at 0.5, and the price to cash flow is low at 8.8. Furthermore, the Enterprise Value/EBITDA ratio is low at 9.6, and the PEG ratio is at 1.4.
Moreover, PSX’s Return on Capital parameters have been much better than its industry median, its sector median and the S&P 500 median, as shown in the table below:
Source: Portfolio123
Final Thoughts on PSX
Phillips 66 (NYSE:PSX) delivered first quarter results which missed earnings-per-share expectations due to lower gasoline and distillate margins. That was the first time after six quarters of beating estimates that the company missed expectations.
However, PSX’s businesses ran well, and it remains focused on operating excellence with industry-leading safety performance. According to Howard Weil report from May 11, U.S. Gulf Coast’s average crack spread in the current quarter has been $9.73 per barrel, compared to $9.28 in the fourth quarter of 2015.
As such, we can expect a slightly better refining margin in the current quarter compared to the prior quarter. Phillips 66 has compelling valuation metrics and healthy earnings growth prospects; its P/E ratio is very low at 11.8.
Moreover, the company returns substantial capital to its shareholders by stock buyback and increasing dividend payments. The average target price of the top analysts is at $86.67, an upside of 10.2% from its May 16 close price, however, in my opinion, shares could go much higher. PSX’s mix of value, growth potential when oil prices rise, and safety gives the stock a high rank using The 8 Rules of Dividend Investing.
Disclosure: This article is originally published on Sure Dividend by Arie Goren.
