A dividend-focused screening strategy that combines a high ChartMill Dividend Rating with minimum profitability and health thresholds is designed to avoid the classic trap of chasing yield for its own sake. One name that currently qualifies is PHILLIPS 66 (NYSE:PSX).
A Dividend Profile Worth Examining
Phillips 66 earns a ChartMill Dividend Rating of 7 out of 10, which places it in the top tier of the Best Dividend screen's selection. The rating reflects a combination of dividend amount, history, and sustainability, rather than just a single high yield figure.
- Dividend yield: 2.51%, which is above the S&P 500 average of 1.73% and broadly in line with the oil, gas, and consumable fuels industry average of 3.42%.
- Payout ratio: 28% of earnings, a low and sustainable level that leaves plenty of room for reinvestment or dividend increases.
- Dividend track record: The company has paid a dividend for at least 10 years and has not decreased it over that period.
- Dividend growth: The annualized dividend growth rate is 5.77%, and earnings are growing faster than the dividend, which supports the continued increase.
The low payout ratio is especially important for dividend investors. When a company spends only 28% of net income on dividends, the distribution is far less vulnerable to an earnings downturn. In contrast, a payout ratio above 80% can signal that a dividend is at risk if profits dip. Investors who want the full breakdown of these dividend metrics can review this fundamental analysis report.
Why Profitability and Health Matter for Dividend Stocks
A generous dividend is only useful if the company can sustain it through the cycle. The Best Dividend screen requires a minimum ChartMill Profitability Rating of 5 and a Health Rating of 5, and Phillips 66 clears both with ratings of 6 on each measure.
- Return on Equity: 22.48%, outperforming 85.31% of industry peers.
- Return on Invested Capital: 9.67%, above the company's own three-year average of 6.68%, indicating improving capital efficiency.
- Altman-Z score: 3.85, suggesting a low near-term bankruptcy risk.
- Debt to free cash flow: 3.22, meaning the company could theoretically pay off all debt in just over three years of free cash flow.
These fundamentals matter for the dividend strategy because they reduce the likelihood of a sudden cut. A highly leveraged or structurally unprofitable company can look attractive on yield alone, but that often ends badly for income investors. Phillips 66 is not a flawless business, its operating margin lags some peers and gross margin is below the industry median, but the balance sheet and profitability profile are sufficient to support the current dividend.
Valuation Adds to the Case
The screen also benefits from a valuation check, even though it is not the primary focus. Phillips 66 trades at 13.69 times trailing earnings and 10.72 times forward earnings, both below the S&P 500 averages. With analysts expecting earnings per share to grow by about 23.6% annually over the next few years, the stock offers a combination of income, reasonable valuation, and potential earnings acceleration. That is a more comfortable setup than buying a stock with an inflated yield and deteriorating fundamentals.
Running the Same Screen
The methodology behind this selection is straightforward: start with a strong dividend rating, then require minimum levels of profitability and financial health to filter out yield traps. Investors who want to find other stocks that fit this approach can explore this screen for more dividend stock ideas.
As with any dividend strategy, the future is not guaranteed. A sharp decline in refining margins or a broader economic slowdown could pressure earnings and, eventually, dividend growth. But the current payout ratio, track record, and balance sheet metrics give Phillips 66 a reasonable margin of safety for income-focused investors.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Always conduct your own research and consider your risk tolerance before making investment decisions.
Read full article here »
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Phillips 66 (NYSE:PSX) Delivers Dividend Quality for Income Investors
A dividend-focused screening strategy that combines a high ChartMill Dividend Rating with minimum profitability and health thresholds is designed to avoid the classic trap of chasing yield for its own sake. One name that currently qualifies is PHILLIPS 66 (NYSE:PSX).
A Dividend Profile Worth Examining
Phillips 66 earns a ChartMill Dividend Rating of 7 out of 10, which places it in the top tier of the Best Dividend screen's selection. The rating reflects a combination of dividend amount, history, and sustainability, rather than just a single high yield figure.
The low payout ratio is especially important for dividend investors. When a company spends only 28% of net income on dividends, the distribution is far less vulnerable to an earnings downturn. In contrast, a payout ratio above 80% can signal that a dividend is at risk if profits dip. Investors who want the full breakdown of these dividend metrics can review this fundamental analysis report.
Why Profitability and Health Matter for Dividend Stocks
A generous dividend is only useful if the company can sustain it through the cycle. The Best Dividend screen requires a minimum ChartMill Profitability Rating of 5 and a Health Rating of 5, and Phillips 66 clears both with ratings of 6 on each measure.
These fundamentals matter for the dividend strategy because they reduce the likelihood of a sudden cut. A highly leveraged or structurally unprofitable company can look attractive on yield alone, but that often ends badly for income investors. Phillips 66 is not a flawless business, its operating margin lags some peers and gross margin is below the industry median, but the balance sheet and profitability profile are sufficient to support the current dividend.
Valuation Adds to the Case
The screen also benefits from a valuation check, even though it is not the primary focus. Phillips 66 trades at 13.69 times trailing earnings and 10.72 times forward earnings, both below the S&P 500 averages. With analysts expecting earnings per share to grow by about 23.6% annually over the next few years, the stock offers a combination of income, reasonable valuation, and potential earnings acceleration. That is a more comfortable setup than buying a stock with an inflated yield and deteriorating fundamentals.
Running the Same Screen
The methodology behind this selection is straightforward: start with a strong dividend rating, then require minimum levels of profitability and financial health to filter out yield traps. Investors who want to find other stocks that fit this approach can explore this screen for more dividend stock ideas.
As with any dividend strategy, the future is not guaranteed. A sharp decline in refining margins or a broader economic slowdown could pressure earnings and, eventually, dividend growth. But the current payout ratio, track record, and balance sheet metrics give Phillips 66 a reasonable margin of safety for income-focused investors.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Always conduct your own research and consider your risk tolerance before making investment decisions.
Read full article here »