Phillips 66 (PSX -1.31%) has been a terrific stock since its public debut in 2012. During that time, the energy company has generated a 241% total return, which has crushed the S&P 500's 180% total return during that timeframe. One of the main factors fueling the company's outperformance is its ability to consistently generate cash, $26 billion of which it has returned to investors through its dividend and share repurchase program.
That number should continue rising in the coming years, given the priority the company has put on returning money to its investors. That was one of the main takeaways on the refining company's fourth-quarter conference call.
Committed to sending cash to investors
Phillips 66 generates a lot of cash each year, thanks in part to its diversified operations, which includes refining, midstream, a major chemicals joint venture, and a marketing and specialties segment. Those businesses combined to produce $1.7 billion in cash during the fourth quarter, pushing the full-year total to $5.6 billion.
The company allocated that cash toward several initiatives, including sending $3.2 billion back to investors with its dividend and share repurchase program. That added to the company's tally since its spinoff from oil giant ConocoPhillips in 2012. Since that time, "we've returned $26 billion to shareholders, and reduced our initial shares outstanding by 33%," stated CEO Greg Garland on the call.
Garland said the company is "committed to strong shareholder distributions." That's why the company "increased the quarterly dividend 12.5% and announced a $3 billion increase to our share repurchase program" last year.
The fuel to keep the cash flowing
While Phillips 66 sends a lot of money to its investors each year, it also retains a significant portion. Over the long term, the company aims to reinvest 60% of its cash flow into high-return expansion projects while returning the other 40% to investors. Last year it funded $3.5 billion of capital projects -- through its balance sheet as well as through master limited partnership (MLP) Phillips 66 Partners (PSXP) -- which should help grow its cash flow in the future.
One of the biggest projects was the Gray Oak pipeline, which Phillips 66 Partners completed last November. That pipeline will supply the MLP with steady cash flow, some of which it will distribute to Phillips 66. It will also transport low-cost oil to Phillip 66's refineries and export terminals, which will help boost its margins and cash flow. Phillips 66, meanwhile, has several other expansion projects under construction, including building two other pipelines with joint venture partners, Liberty and Red Oak, that should start-up in the first half of next year. When they do, they'll provide the company with similar benefits.
In addition to the cash flow growth from its expansion projects, Phillips 66 launched a business transformation program late last year, dubbed AdvantEdge 66. The company will use technology to change how it runs its operations, executes projects, and makes decisions. It expects that this will deliver $1.2 billion of improvements through cost savings and capital avoidance by next year. That will give the company even more money to support the continuous growth in cash returns to its investors.
The fuel to keep outperforming
Phillips 66 has returned a lot of money to its investors over the years. This trend doesn't appear to be nearing an end because it continues to expand its cash-gushing operations. That suggests the company should be able to continue growing shareholder value in the years to come.