If you only pay attention to energy exploration and production (E&P) companies, then you're missing a huge part of the industry's profit-making potential. Refiners such as Phillips 66 (NYSE:PSX) and HollyFrontier (NYSE:HFC) provide a market for the production from oil and gas E&P specialists, and they aim to profit on the spreads they can earn between what they pay for crude oil and what they receive for the refined energy products they make. The two companies also have other businesses beyond refining, such as Phillips 66's midstream operations and chemical manufacturing facilities and HollyFrontier's Petro-Canada lubricants business.

As energy remains volatile, investors want to know which of these refinery stocks makes more sense right now. Let's look at Phillips 66 and HollyFrontier using a variety of key metrics to see which one might be the better buy for investors.

Valuation and stock performance

Phillips 66 and HollyFrontier have seen quite similar performance in their stock prices over the past year. Both of the stocks have seen roughly 6% gains since August 2016, with Phillips 66 having a very slight advantage.

From a valuation standpoint, relatively modest multiples in the refinery arena reflect long-term concerns about the future of the industry. On a trailing basis, HollyFrontier has a net loss over the past 12 months, while short-term issues that have hit Phillips 66 lately have inflated its trailing earnings multiple to 26. When you incorporate near-term projections for future profits, the valuations of the two companies become much more meaningful and converge. HollyFrontier has a slight edge with a forward multiple of 13, but Phillips 66's corresponding valuation at 14.5 times forward earnings isn't that huge of a difference.

Phillips 66 research center facility.

Image source: Phillips 66.

Dividends

Refinery stocks often pay lucrative dividend payouts, and Phillips 66 and HollyFrontier are no exception, ranking among top dividend payers in the space. HollyFrontier's current yield of 4.6% is quite rich, but even though Phillips 66's 3.4% yield is smaller, it's also well above the market average.

Payout ratios are meaningless for HollyFrontier because of its short-term losses, but based on forward projections, the refiner pays out about 60% of its expected earnings as dividends. Phillips 66 has a meaningful backward-looking payout ratio of between 75% and 80%, but in apples-to-apples terms, forward estimates give a number of just under 50%. Phillips 66 has also been better about growing its dividend over time, compared with flat payouts for HollyFrontier over the past couple of years.

The two companies are basically a wash on the dividend front. HollyFrontier offers a higher yield, but dividend growth and a more conservative payout strategy make Phillips 66 look more attractive to some investors.

Growth prospects and risk

Phillips 66 and HollyFrontier have had interesting results lately. Phillips 66 gets a lot of benefits from the diversified portfolio of assets that it owns, ranging from chemical production to midstream pipelines and downstream marketing and specialties businesses. The company has a lot of ideas on how it will grow in the future, and not all of them are in the traditional areas that refinery companies have typically pursued. CEO Greg Garland said that despite refining being a "good business," he "just doesn't see it growing." By contrast, using feedstock for plastics manufacturing makes sense in the current economic environment, and investments in a liquefied petroleum gas export facility aim to take advantage of greater demand for midstream assets. Those areas still have plenty of potential and could lead the company forward for years into the future.

HollyFrontier has posted stellar results of its own. The company saw revenue jump by more than a quarter compared to the year-earlier period, and HollyFrontier reversed a loss in the second quarter of 2016 by posting a profit in its most recent quarter. The refiner prides itself on geographical proximity to key supply markets, and that paid off with strong gross profit margin figures during the period. Utilization rates also jumped dramatically, taking full advantage of opportunities to produce profit. With improved performance from its Rocky Mountain segment, which has been a historical laggard, HollyFrontier is moving forward strongly even in a challenging environment.

HollyFrontier looks like the smarter pick currently. With a more attractive valuation, higher dividend yield, and solid internal performance, HollyFrontier gets the nod despite strong long-term results from Phillips 66 over time.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.