Table of Contents
In addition to being the most valuable U.S. energy company, ExxonMobil is a consistent dividend payer, with more than 42 consecutive years in which the payout was increased. With a diversified business model and sufficient cash flow to invest in organic growth, acquisitions and the energy transition, Exxon and its 3.3% yield are an attractive offer.
However, midstream, refining, chemical and marketing company Phillips 66 (NYSE:PSX) now also stands out as a good buy. The company does not operate an exploration and production segment, which makes it significantly different from a major company like Exxon or well-known upstream companies like ConocoPhillips or Western petroleum.
This is why the Philips 66 is reliable dividend shares Worth considering, especially for investors with sufficient exposure to exploration and production companies and looking to diversify their oil and gas holdings.
Shift the focus
Phillips 66 was hit extremely hard by the COVID-19 pandemic, posting a brutal $4 billion loss in 2020. For context: Chevron lost $5.5 billion in 2020, even though it is a much larger and more diversified company than Phillips 66. Phillips 66’s stock price dropped like a stone, and it was clear something had to change.
The company has cut costs and rethought its portfolio. The company is working to divest retail and marketing assets in Germany and Austria and is targeting $1.4 billion in cost savings by the end of 2024. Phillips 66 hopes the lower cost profile, combined with higher profitability, will help it reach the middle of the cycle. adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $14 billion by 2025, including the return of more than 50% of operating cash flow to shareholders.
In the chart, Phillips 66 is keeping capital expenditures and operating costs low as the company tries to grow its profits. However, it is still making targeted investments. For example, it has invested heavily in transforming the San Francisco refinery into a biofuel plant that can produce more than 50,000 barrels of renewable fuels per day.
In April, Phillips 66 announced that the complex has an output of 30,000 barrels per day and is on track to reach its target of 50,000 by the end of the second quarter. The project has come at a high cost, but Phillips 66 believes this is the right step to ensure it has a diversified portfolio and can meet the downstream needs of the energy transition.
In short, Phillips 66 is delivering impressive results and has set clear expectations for shareholders through medium-term targets and some major infrastructure investments.
When Phillips 66 began growing again in 2022, the company committed to returning substantial capital to shareholders through dividends and buybacks. The company says it is on track to return $13 billion to $15 billion to shareholders between July 2022 and the end of 2024.
Since ConocoPhillips spun off its downstream assets to form Phillips 66 in 2012, Phillips 66 has increased its dividend at a compound annual rate of 16%, including a 10% increase in its quarterly dividend to $1.15 per share in April. The increase increases Phillips 66’s annual payout to $4.60 per share, yielding a forward yield of 3.3%.
Phillips 66 is not nearly as large as integrated oil giants like ExxonMobil and Chevron, which have assets both upstream and downstream. However, it still has significant dividend costs of around $1.8 billion per year. Impressively, Phillips 66 has spent even more on buybacks, including $4.2 billion in the last twelve months. Phillips 66 takes advantage of a favorable period in the business cycle and rewards shareholders directly.
Phillips 66 is worth a look
Philips 66 shares are down 19% from their all-time high reached just a few months ago. But there is reason to believe that the stock is now a buying opportunity.
The price-earnings ratio of 10.8 is within the range of the historical average. The dividend continues to grow and is already at an attractive level with a yield of 3.3%.
Phillips 66 is also a leading company with the resources necessary to make significant investments in new projects that could lay the foundation for future biofuel projects. Put it all together and Phillips 66 is a quality dividend stock to buy now.
Should You Invest $1,000 in Phillips 66 Now?
Consider the following before purchasing shares in Phillips 66:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Phillips 66 wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $722,626!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns July 15, 2024
Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has one disclosure policy.
ExxonMobil is a rock-solid dividend stock, but so is this dirt-cheap value stock that paid $1.8 billion in dividends last year was originally published by The Motley Fool