Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Phillips 66 in Focus
Based in Houston, Phillips 66 (PSX - Free Report) is in the Oils-Energy sector, and so far this year, shares have seen a price change of 18.19%. Currently paying a dividend of $0.8 per share, the company has a dividend yield of 2.68%. In comparison, the Oil and Gas - Refining and Marketing industry's yield is 1.66%, while the S&P 500's yield is 1.78%.
In terms of dividend growth, the company's current annualized dividend of $3.20 is up 17.2% from last year. In the past five-year period, Phillips 66 has increased its dividend 5 times on a year-over-year basis for an average annual increase of 15.98%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Phillips 66's current payout ratio is 49%, meaning it paid out 49% of its trailing 12-month EPS as dividend.
PSX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $7.81 per share, which represents a year-over-year growth rate of 78.31%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that PSX is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).