Tuesday, May 24, 2016

Dividend Growth Investing at Work - Refining Higher Dividends Out Of The Oil Field

Something I love about dividend growth investing is that each month I get to hear about companies I own deciding to pay me more money in dividends.  Just for owning a small portion of said companies.  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  That's dividend growth investing at work!  I mean who doesn't like getting a raise for doing nothing?

April was a banner month in terms of dividend growth with 9 different companies giving owners a pay raise.  Sadly, May hasn't been quite as fruitful with my first, and likely only, dividend increase coming from Phillips 66 (PSX) earlier this month.

The Board of Directors for Phillips 66 approved a solid 12.5% increase to their quarterly dividend payment.  The old payout of $0.56 was increased up to $0.63 per quarter.  This is the 5th consecutive year of dividend increases from Phillips 66 which now gives them the title of Dividend Challenger.  Shares currently yield 3.24%.

Since I own 8.289 shares of Phillips 66 in my FI Portfolio this raise increased my forward 12-month dividends by $2.32.  This is the 6th dividend increase across 5 years since receiving shares of Phillips 66 via the spinoff from ConocoPhillips in 2012..  From dividend increases alone my income from Phillips 66 has increased by 215%!  According to USInflationCalculator the total inflation over that same time period is just 4.2% so Phillips 66 is absolutely crushing inflation in terms of increasing my income.

Phillips 66 doesn't have the longest dividend growth streak although the raises are coming at a great rate.

The dividend has more than tripled in less than 4 years!  That's some awesome stuff.

The refiners have been thriving during the fall in oil prices over the last 1.5-2 years and Phillips 66 is no exception.  Refiners are typically a spread company or a middle man type business model where they make money on the difference in prices and not necessarily the changes in the price of the underlying commodities.

The new dividend payout represents a 43.1% payout ratio based off the average analyst estimate of $5.85 for 2016 earnings.  The dividend is well covered by earnings, although cash flow is a bit worrisome since Phillips 66 has been free cash flow negative for the last 2 years due to large expansion projects to build further grow the company.  The dividend is still safe, although it's something to watch as the spreads tighten reducing profits and cash flow.

Wrap Up

My forward dividends increased by $2.32 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 3.10% this raise is like I invested an extra $75 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

For a dividend growth investor there's not much that's better than hearing news of a dividend increase.  So far this year I've received 23 increases from 21 companies increasing my forward 12-month dividends by $111.93.

My FI Portfolio's forward-12 month dividends are up to $5,548.26 and including my Loyal3 portfolio's forward dividends of $63.76 brings my total taxable account forward dividends to $5,612.02.

How has May been for dividend increases after a busy April?

Image courtesy of digitalart on FreeDigitalPhotos.net.


  1. It is always nice to get raises, even on months when there aren't that many. 23 raises so far this year... thats pretty good. Seems as though you have a pretty nice snowball rolling there. Keep up the good work PIP.

    1. More Dividends,

      It sure is nice to see pay raises continuing to come through. Especially after getting my layoff notice last month. So every bit helps. My forward dividends have increased by over $100 this year alone from dividend increases which is pretty nice in my book.

      Thanks for stopping by!