“This is because the refining sector has been in a cash tax paying position over the past several years, driven by above-trend crack spreads, strong economic growth, access to cheaper shale based crudes, and structurally cheap gas and power,” said Fitch. “Several refiners identified substantial reductions in cash taxes in Q417 earnings calls, including Marathon Petroleum (MPC, $400 million to $500 million), Phillips 66 (PSX, $400 million range) and Valero ($350 million after taking into account repatriation impacts).”
Those three companies are three of CRAK four largest holdings and combine for 21.6 percent of the ETF’s roster.
“Fitch expects increased tax-related cash flows will partly be used to help support refiner distribution policies. MPC cited extra cash from tax relief as a factor in its decision to increase its dividend by 15%. Valero did not directly link its 14% dividend increase to the tax legislation, but did cite the cash tax benefit and noted that it had paid out above its target range for payouts in 2017,” according to the ratings agency.
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