Phillips and Marathon Outperforming their Parents
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Progress Report: ConocoPhillips (NYSE: COP), mentioned 12/30/11 trading around $73 per share, currently trading around $54-$55 a share. Looks like a typical analyst recommendation for 2012, right? Not so fast, if you’ll recall the company spun-off their refining arm earlier this year.
The result of the spin-off comes in the form of Phillips 66 (NYSE: PSX), and it is currently trading close to “all-time” highs (it’s funny because the spin-off was a quarter ago), around $38 per share. In the short life-span of the “new” company, Phillips has rebounded nicely off the June lows around $29 a share, gaining about 20% since that dreadful period following the May sell-off craze. Since that time, they started paying loyal shareholders 20-cents a share each quarter, amounting to a decent 2.1% dividend yield. Also last month, Olympic table tennis aficionado, Warren Buffett announced that he scooped some shares up for his Berkshire Hathaway basket of holdings (BRK-A), and considering his investing style, I’m guessing he’s long on this stock.
In their recent earnings festivities, Phillips reported an increase in net income, $1.18B versus $1.04B, thanks to favorable fuel margins, also stating that increasing domestic fuel supplies will ultimately result in more cash returned to shareholders. Sounds like we may see a dividend increase sooner, rather than later. As if there weren’t enough love being shared on the call, the company revealed their intentions to buy back $1B worth of shares. All in all, the recent developments are enough to warrant shopping for victory cigars at some point in the future.
Proud parent Conoco reported last week that their own quarterly profits decreased by 33% due to the loss of income from its former refining operations from Phillips. I wouldn’t expect a dividend increase from Conoco, which currently affords shareholders $2.64 per share annually for a rather healthy 4.8% yield. As the fiscal cliff looms and Europe continues to play financial Keystone Kops, I want to be in dividend-paying stocks with emphasis on performance. So I’ll ride this one lower, reinvesting my dividends on the way down.
Not to be outdone in the refining space, Marathon Petroleum Corporation (NYSE: MPC), reported earnings beats on their top and bottom lines, and recently crossed the 3% yield threshold. The fine folks at Marathon started spin-off mania last year, the bouncing baby from the nurturing arms of Marathon Oil Corporation (NYSE: MRO). Maybe the big banks will catch on to the positive results from establishing separate entities, but I wouldn’t hold my breath. The refineries have fared a little better than the explorers since the April/May sell-offs, as Marathon Oil is about $10 off their February range, whereas the Petroleum side is up over 35% since the June lows. Both provide comfort for investors by way of decent dividends, but I can’t help but be with Buffett on this one and stick with Phillips.
Each of the companies mentioned look like solid investment plays, but my dollars are sticking with the Conoco/Phillips team. I think the prospects are better for Phillips, with the potential for dividend growth and the plans for share buy backs.
Motley Fool blogger Kyle Metivier has long positions with ConocoPhillips and Phillips 66. He owns no shares of any other company mentioned. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
