1 Energy Stock with 19 Consecutive Payout Increases
Phillips 66 Partners LP (NYSE:PSXP) stock does not make headlines very often. But over the years, it has provided investors with one of the fastest-growing income streams in the energy sector.
Consider this: when Phillips 66 Partners LP was formed in 2013, it had a minimum quarterly distribution rate of $0.2130 per unit. The partnership went public in July of that year and paid its first distribution of $0.1548 per unit—a prorated amount corresponding to the minimum rate—in November.
Since then, management has increased the payout every single quarter. Most recently, the partnership raised its cash distribution by 5.3% to $0.752 per unit, marking its 19th consecutive quarterly distribution hike. (Source: “Distribution History,” Phillips 66 Partners LP, last accessed September 4, 2018.)
From its initial public offering (IPO) to today, Phillips 66 Partners LP’s per-unit distribution has increased at a compound annual growth rate of 30%. That number is quite impressive, especially when you take into account the fact that PSXP stock comes from the energy sector. Oil and gas prices crashed big time not long after the partnership’s IPO, and yet it managed to give shareholders a pay raise every three months.
The reason behind PSXP stock’s astonishing dividend history lies in its fee-based business model. The partnership was created by Phillips 66 (NYSE:PSX) to own, operate, develop, and acquire crude oil, refined petroleum products, and natural gas liquids pipelines and terminals.
PSXP earns a fee for each barrel of crude that’s traveling through its pipeline or being stored at its terminal. Because the partnership does not drill new wells, it does not have to worry too much about commodity prices.
Phillips 66 Partners LP: A Dividend Growth Stock You Likely Haven’t Considered
Right now, Phillips 66 Partners LP trades at around $52.00 per unit, offering investors a generous annual yield of 5.8%.
Obviously, there are stocks with bigger payouts. But what makes PSXP stand out is its distribution safety.
You see, the partnership’s rising payouts are backed by a growing business. In the second quarter of 2018, Phillips 66 Partners LP generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $276.0 million, representing an 11.7% increase sequentially. Distributable cash flow came in at $204.0 million, up five percent from the first quarter. (Source: “Phillips 66 Partners Reports Second Quarter 2018 Earnings,” Phillips 66 Partners LP, July 27, 2018.)
Thanks to a growing business, Phillips 66 Partners LP achieved a distribution coverage ratio of 1.38 times in the second quarter. In other words, the cash generated from the partnership’s operations was 38% more than what was needed to meet its distribution obligations. That has left a wide margin of safety.
The Bottom Line on Phillips 66 Partners LP
By providing investors with rising payouts under strong commodity headwinds, Phillips 66 Partners LP is a rare find.
And the best could be yet to come. In the latest earnings report, the partnership said that it is on track to achieve a 30% five-year distribution compound annual growth rate at year-end 2018. So in the next several months, PSXP stock investors will likely get an even bigger distribution check in the mail.