Most people who are focused on investing for retirement want lower-risk stocks that offer a compelling blend of growth and income. This approach improves the probability that their stock portfolio will increase in value over time. That should help enlarge their nest egg so that they can thrive in their golden years.
One company that has proven to be an ideal investment for a retirement-focused portfolio is refining giant Phillips 66 (PSX +2.08%). It's established an excellent track record of both investing in projects that grow its operations while at the same time returning boatloads of cash to its shareholders. That trend appears poised to continue, given its recent reaffirmation of its strategy.
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Earmarking another $3 billion for its shareholders
Phillips 66 recently announced that its board of directors had approved a new $3 billion share repurchase program. That brings its total authorization up to $15 billion since it started repurchasing shares in 2012 following its separation from oil giant ConocoPhillips. The program has already reduced the company's share count by 32% from its initial level.
In addition to the buyback, Phillips 66 also declared its latest quarterly dividend. While that payout is the same level it has been since May, the company has an excellent track record of increasing its dividend. The May payout, for example, was 12.5% above the prior level. That marked its ninth increase since its inception in 2012, with the payout growing at an impressive 25% compound annual rate over that time frame. At the current level, Phillips 66's dividend yields a well-above-average 3.5%.
CEO Greg Garland commented on the latest shareholder-friendly moves in a press release. He stated: "The new share repurchase program demonstrates our ongoing commitment to return capital to our shareholders. Disciplined capital allocation is fundamental to our strategy and our long-term objective is to reinvest 60% of our operating cash flow back into the business and return 40% to shareholders." Those cash returns have added up over the years, with the company now having sent more than $24 billion back to its investors through both share repurchases and a growing dividend.
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Keeping the growth engine well fueled
As Garland noted, returning cash to shareholders is only part of Phillips 66's objective. It also continues to target spending about 60% of its annual cash flow on expansion projects so that it can keep growing earnings.
The company recently approved several new projects, which should help boost its cash flow in the coming years. In June, Phillips 66 announced plans to build the Red Oak and Liberty Pipeline systems. It's building Red Oak as part of a 50-50 joint venture with oil pipeline master limited partnership Plains All American. The $2.5 billion pipeline project will transport oil from a major storage hub in Oklahoma to the Gulf Coast of Texas when it starts up in the first quarter of 2021. Liberty, meanwhile, is a 50-50 joint venture with Bridger Pipeline. The $1.6 billion pipeline project will move oil from the Rockies region to Oklahoma when it starts up in the first quarter of 2021. It also recently approved a fourth natural gas liquids (NGLs) processing facility at its Sweeny Hub. That one should start up by the second quarter of 2021.
In addition to the projects it's financing with its retained cash flow, Phillips 66 will also benefit from expansion projects funded by its affiliated subsidiaries. For example, it controls MLP Phillips 66 Partners. That entity is building several expansion projects that will come on line over the next couple of years, including a large-scale oil pipeline that it should finish by the end of this year. Likewise, it's a major investor in MLP DCP Midstream, which also has several growth projects underway. Finally, the company jointly owns CPChem with oil giant Chevron. That chemicals joint venture is working with Qatar Petroleum on developing large-scale petrochemical projects in the U.S. and Qatar. As all these expansion projects come on line over the next few years, they'll benefit Phillips 66, given its investment in each of those entities. That enhances the company's ability to grow value for its investors.
A great stock to own for the long haul
Phillips 66's strategy has enriched its investors since its formation. The dual approach of investing in expanding its operations while also returning cash to investors has given it the fuel to generate a nearly 280% total return. That has crushed the S&P 500's roughly 145% total return over that time frame. With the company sticking with its strategy, it should have plenty of fuel to continue producing healthy total returns over the long term. That makes it an ideal stock to consider owning in a retirement account.
