Phillips 66 Stock Is Up 133%. Can Its Dividend Keep Growing?
Phillips 66 has handed investors a 133% gain this year and just bumped its dividend again, but a swelling debt load and volatile refining margins raise real questions about how long the raises can continue.
Phillips 66 (NYSE:PSX | PSX Price Prediction) raised its quarterly dividend by $0.06 on Oct. 16, bringing the payout to $1.33 per share. The prior rate was $1.27. That’s a 4.7% raise, or $5.32 a year. At the latest price of $294.43, the forward yield comes to about 1.8%. The yield is thin because the stock is up 132.87% year to date. Income investors need to know whether the cash behind the payout holds up once refining margins cool.
Refining Windfall Covers the Payout Many Times Over
In the second quarter, cash from operations excluding working capital hit $4,317 million, up from $699 million in Q1. Dividends of $508 million used only about 11.8% of that. Realized refining margins jumped to $24.08 per barrel from $10.11 in Q1. Adjusted EPS came in at $9.41, ahead of the $8.09 consensus.
Q1 showed the downside. Cash ex working capital of $699 million was above the Q2 dividend bill, and $839 million in mark-to-market derivative losses weighed on the quarter. Management describes today’s tight market as a supply shock. Brian Mandell said he expects stronger margins “potentially through the rest of 2027,” but refining remains the volatile part of the business.
Midstream Carries the Dividend
On the Q2 call, management said the steadier businesses are what actually fund the payout:
“Midstream, along with Marketing and Specialties, provides that consistent cash generation to cover the sustaining capital and the dividend and, today, a significant portion of our interest expense.”
Midstream makes roughly $1 billion a quarter and is on track for a $4.5 billion EBITDA run rate by year-end 2027. Two new chemical crackers expected in 2027 are the main source of a $500 million chemicals earnings-growth target.
Debt Paydown Competes With Buybacks
Total debt rose to $27.1 billion in Q1 from $19.7 billion. Over the same stretch, debt-to-capital rose to 48%. Since then, Phillips 66 has paid off its commercial paper and its term loan. CFO Kevin Mitchell expects net debt to fall below $16 billion by the end of 2026, and the company still plans to return more than 50% of operating cash flow, excluding working capital, to shareholders. Mark Lashier said buybacks should help the company.
“keep pace with our dividend increases even more dramatically.”
How Marathon and Valero Compare
Valero Energy (NYSE: VLO) pays $1.20 a quarter. It returned $2.6 billion to shareholders in Q2, a 59% payout of adjusted operating cash flow. Marathon Petroleum (NYSE:MPC) returned more than $2.80 billion in Q2, and its MPLX (NYSE:MPLX) distributions are expected to more than fund its 2026 dividend and standalone capital spending. Phillips 66 returned $887 million, or 21% of its cash flow ex working capital. For now, cutting debt comes first.
Track Record and Verdict for Income Investors
The quarterly dividend has risen from $0.20 in 2012. It rose every calendar year except 2020, when it stayed at $0.90. The new rate is 10.8% above the $1.20 paid a year earlier.
The payout looks built to last. Midstream and marketing cash covers it, and at today’s margins it takes up only a small share of operating cash. The main risk is the balance sheet. A sharp drop in crack spreads before debt falls toward the $16 billion target would slow future raises.
A yield this modest rarely shows the usual warning signs, but refiners are exactly where ugly surprises hide (we laid out the seven tells of a dividend about to be cut in a free report, here). The 1.8% yield will feel modest to anyone seeking high current income. Those who want dividend growth should watch debt paydown and midstream’s progress toward its 2027 run rate.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
