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# Phillips 66 (NYSE:PSX)

## Dividend Discount Model (DDM)

Intermediate level

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

### Intrinsic Stock Value (Valuation Summary)

Phillips 66, dividends per share (DPS) forecast

US\$

Year Value DPSt or Terminal value (TVt) Calculation Present value at 0 DPS01
1 DPS1 = × (1 + )
2 DPS2 = × (1 + )
3 DPS3 = × (1 + )
4 DPS4 = × (1 + )
5 DPS5 = × (1 + )
5 Terminal value (TV5) = × (1 + ) ÷ (  )
Intrinsic value of Phillips 66’s common stock (per share)
Current share price

Based on: 10-K (filing date: 2020-02-21).

1 DPS0 = Sum of the last year dividends per share of Phillips 66’s common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

### Required Rate of Return (r)

 Assumptions Rate of return on LT Treasury Composite1 RF Expected rate of return on market portfolio2 E(RM) Systematic risk of Phillips 66’s common stock βPSX Required rate of return on Phillips 66’s common stock3 rPSX

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

3 rPSX = RF + βPSX [E(RM) – RF]
= + [  ]
= ### Dividend Growth Rate (g)

#### Dividend growth rate (g) implied by PRAT model

Phillips 66, PRAT model

Average Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Selected Financial Data (US\$ in millions)
Dividends paid on common stock
Net income attributable to Phillips 66
Sales and other operating revenues
Total assets
Stockholders’ equity
Financial Ratios
Retention rate1
Profit margin2
Asset turnover3
Financial leverage4
Averages
Retention rate
Profit margin
Asset turnover
Financial leverage

Dividend growth rate (g)5

Based on: 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-19).

2019 Calculations

1 Retention rate = (Net income attributable to Phillips 66 – Dividends paid on common stock) ÷ Net income attributable to Phillips 66
= (  ) ÷ = 2 Profit margin = 100 × Net income attributable to Phillips 66 ÷ Sales and other operating revenues
= 100 × ÷ = 3 Asset turnover = Sales and other operating revenues ÷ Total assets
= ÷ = 4 Financial leverage = Total assets ÷ Stockholders’ equity
= ÷ = 5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= × × × = #### Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ( ×  ) ÷ ( + ) = where:
P0 = current price of share of Phillips 66’s common stock
D0 = the last year dividends per share of Phillips 66’s common stock
r = required rate of return on Phillips 66’s common stock

#### Dividend growth rate (g) forecast

Phillips 66, H-model

Year Value gt
1 g1
2 g2
3 g3
4 g4
5 and thereafter g5

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= + (  ) × (2 – 1) ÷ (5 – 1) = g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= + (  ) × (3 – 1) ÷ (5 – 1) = g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= + (  ) × (4 – 1) ÷ (5 – 1) = 