Sunday, April 22, 2012

Upcoming ConocoPhillips Spinoff

As most ConocoPhillips (COP) investors know, in about a week it will spinoff its midstream and downstream businesses into a new company.  The new company will be called Phillips 66 and will trade under the ticker PSX.  COP will receive cash from the spinoff and will then focus on exploration and production.  No longer will it be an integrated oil corporation.  Investors will receive 1 share of PSX for every 2 shares of the current COP.  In my case I will end up with 36 shares COP and 18 shares PSX. 

ConocoPhillips has stated it will use most of the cash raised from the spinoff to pay down debt.  I read it plans to keep the same quarterly dividend of $.66.  This caught my attention.  After the spinoff the share price of COP will be reduced to around $55 (based on COP-WI) meaning it will yield around 4.8%!  They still plan to reward shareholders with dividend increases and share buybacks.  The new streamlined company will focus on exploration and production- finding and extracting oil & natural gas. 

Phillips 66 intends to pay a quarterly dividend of $.20.  Based on a recent price of $36 (PSX-WI) this comes out to a yield of about 2.2%.  Again we can expect dividend growth and share buybacks as was stated in a recent investor update.  PSX will be a downstream and midstream energy company.  This means they own pipelines, refineries, and gas stations.  Right now the largest segment is refining and marketing.  In the future PSX plans to expand its pipeline and chemicals segments.  The chemical business produces hydrocarbons such as Olefin which is used to make house wraps, cigarette filters, clothing, rope, and carpet to name just a few applications.  Don't think of PSX as just a bunch of gas stations and refineries.  There is more to the story. 

I plan to hold both companies.  I'm excited that both COP and PSX want to reward shareholders with increasing dividends.  Since PSX is brand new it has no dividend history. We know it's yield will be low.  Will it have high dividend growth to compensate?  We really don't know.   I'm willing to give it some time and see what happens.

For the time being I will consider adding to the new COP until I know more about PSX.  COP is going to have a juicy dividend.  It will be hard to resist.

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