The Marketing & Specialties segment primarily sells retail gas under following names: Phillips 66, Conoco, 76 brands, Jet, and Coop. In addition, the segment sells lubricants and other specialty products globally.
Dividends & Share Repurchases
Phillips 66 (NYSE:PSX) was spun-off from ConocoPhillips in 2012. At first glance, the company appears as though it has a short dividend history, but this is not the case.
Phillips 66 has not reduced its dividend payment since 1987 if you count the company’s pre-spin-off dividend payments from its parent company ConocoPhillips.
With an above-average 2.7% dividend yield and a payout ratio of 32%, it is very likely that Phillips 66 continues to pay rising dividends over the next several years.
The company does more than reward shareholders with rising dividends. Phillips 66 has engaged in extensive share repurchases since it was spun-off. From 2012 through 2014, Phillips 66 reduced its share count from 623.5 million to 546.4 million – a 12% reduction.
The company’s CEO Greg Garland clarified the company’s capital allocation budget in the company’s most recent earnings call:
“The guidance we’ve been giving and we’ll be consistent today, it’s kind of 60/40. Of the cash from all sources, 60% is going to go into reinvestment, 40% is going to be returned to shareholders through dividends and share repurchases. As long as we are trading under intrinsic value we are going to be buying shares and we’re buying shares every day.”
Based on the statements above, Phillips 66 will likely keep its dividend payout ratio in the 30% to 40% range. Garland stated that as long as we are trading under intrinsic value they will continue to do share repurchases. This means that if they were trading above intrinsic value, the company would stop doing share repurchases. When a management buys its own stock below fair value,and stops when it rises above fair value, they are doing a tremendous job of capital allocation.
Philips 66’s management is very shareholder friendly. It is extremely likely that the company continues rewarding shareholders with both rising dividend payments and reduced shares outstanding.
Hedge Fund Ownership
Several large investors and hedge funds have taken notice of Phillips 66’s low valuation and shareholder friendly management.
Legendary oil investor T. Boone Pickens has invested 4.6% of his portfolio into Phillips 66. Warren Buffett also owns shares of Phillips 66 (click here to see Warren Buffett’s 20 highest yielding dividend stocks).
In addition, Phillips 66 is one of Daniel Loeb’s 10 largest holdings. Loeb runs successful hedge fund Third Point, LLC.
Several of the world’s most iconic investors have taken a stake in Phillips 66. Examining the moves of highly successful investors doesn’t replace doing your own research – but it can help to validate an investment thesis.
