Phillips 66 Partners (NYSE:PSXP) has been an excellent dividend stock over the years. The master limited partnership (MLP) has increased its payout every quarter since its initial public offering (IPO) in 2013, recently notching its 23rd straight increase. With its latest raise -- which was 9% above the prior year's level -- the company pushed its yield up to 6.2%.

That dividend should head even higher over the next few years. One factor driving that view is the MLP's third-quarter results, which proves that it has the fuel to keep growing.

Drilling down into Phillips 66 Partners third-quarter results


Q3 2019

Q2 2019

Q3 2018

Adjusted EBITDA

$323 million

$319 million

$305 million

Distributable cash flow (DCF)

$255 million

$254 million

$218 million

Distributions paid

$197 million

$177 million

$160 million

Distribution coverage ratio

1.29 times

1.44 times

1.36 times

Data source: Phillips 66 Partners. EBITDA -- earnings before interest, taxes, depreciation, and amortization.

Phillips 66 Partners delivered another record quarter, as earnings rose nearly 6% year over year and 1.3% sequentially, thanks to higher volumes and increased rates on its pipeline and storage assets. The company also benefited from the start of a new unit that produces higher-octane gasoline blend components at a refinery operated by its parent Phillips 66 (NYSE:PSX).

Those same factors helped drive the 0.4% sequential increase in DCF. Meanwhile, a deal with Phillips 66 to eliminate the management fees it paid its parent helped fuel a 17% year-over-year surge in DCF.

That big uptick in cash flow enabled Phillips 66 Partners to continue growing its distribution at a fast pace while maintaining a healthy coverage ratio. That allowed it to retain some excess cash to help finance expansion projects. Overall, the company invested $136 million on expansions during the quarter, covering the gap with new debt. While that nudged its leverage ratio from 2.8 times to 3.2 times over the past quarter, that's well within the sub-4.0 comfort zone of most MLPs.

A person drawing a chart on a green chalkboard of rising dollar signs.

Image source: Getty Images.

A look at what's ahead for Phillips 66 Partners

Phillips 66 Partners' earnings growth rate should accelerate in the coming quarters due to the expected completion of several expansion projects. The biggest near-term driver is the $2.7 billion Gray Oak Pipeline, which the company and its partners are in the process of starting up. That 900,000 barrel-a-day system will transport oil from the Permian Basin and Eagle Ford Shale regions to refineries and export markets along the Gulf Coast.

The MLP has several more expansions under construction that will drive growth after Gray Oak. It's investing in a new export terminal that will come online in the middle of next year and constructing the Sweeny to Pasadena Pipeline that it expects to finish in the second quarter. It's also increasing the storage capacity of Clemens Caverns from 9 million to 15 million barrels, and that should be completed by the end of next year. Finally, it's building the C2G pipeline that should start up by mid-2021.

The company secured long-term contracts with Phillips 66 and third-party customers to support all those expansion projects. Because of that, they'll provide it with steady cash flow when they start up over the next two years. That'll give it more money to grow its distribution, as well as invest in additional expansions.

Phillips 66 Partners' high yield should continue heading higher

Phillips 66 Partners has done an excellent job of growing its dividend throughout its history. That trend should continue over the next few years, which is one of the clear takeaways from the company's third-quarter report. Not only did its earnings and cash flow keep growing during that period, but they also should keep increasing over the next couple of years. Add in the company's healthy financial profile, and it looks like an excellent option for income-seeking investors.