There are solely about 500 firms which have raised their dividends yearly for a minimum of 10 consecutive years.
It’s not a straightforward accomplishment, as an organization has to persistently develop its money move and be sure that it’s not paying out an excessive amount of in dividends yearly in order that the dividend doesn’t turn into unaffordable if money move hits a snag.
Phillips 66 (NYSE: PSX) is an vitality and chemical substances provider that traces its origins again to 1875.
The corporate pays out a $0.97 per share quarterly dividend, which comes out to a 4.1% annual yield. It has raised its dividend for 10 years in a row.
Money move noticed a dramatic drop in 2020. Can the corporate nonetheless afford to pay shareholders the present $0.97 per share?
Let’s have a look.
Phillips 66 has completed an excellent job producing money move, aside from in 2020, which isn’t shocking as a result of that’s when oil costs fell off a cliff, even hitting destructive numbers in April of that 12 months.
That 12 months, the corporate didn’t generate any free money move. In reality, it used greater than $800 million to function its enterprise.
But it surely got here roaring again in 2021 with $4.2 billion and is anticipated to generate $6.8 billion this 12 months.
Phillips 66 retains its payout ratio low. That’s the way it was in a position to preserve the dividend even in 2020, when it used money as an alternative of making money move.
Final 12 months, the corporate’s payout ratio was simply 38%. This 12 months, it’s anticipated to fall to 27%, regardless of the corporate paying out extra in dividends.
The payout ratio is the proportion of money move (or earnings) that’s paid out in dividends. I wish to see a payout ratio of 75% or decrease. So a 27% payout ratio means the corporate can increase the dividend in an enormous approach. And it actually doesn’t have to contemplate a reduce.
Phillips 66 started paying a dividend in 2012, and it has elevated yearly.
Contemplating its ultra-low payout ratio, rising free money move and decadelong dividend-raising historical past, the chance of a dividend reduce within the close to future is extraordinarily low.
Dividend Security Ranking: A
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Good investing,
Marc