Valero (VLO) raises dividend by 17% & offers solid value within the energy sector.

Valero’s (NYSE:VLO) dividend was increased by a solid 17%. Its overall yield is 4.26% based upon the increase. The firm started paying a dividend in 1993.

Valero operates as an independent petroleum refining and marketing company in the United States and also in Canada, United Kingdom, and Ireland. It operates through two segments, Refining and Ethanol. The Refining segment is involved in refining, wholesale marketing, and bulk sales and trading activities. It operates 14 refineries with a total throughput capacity of 2.9 million barrels a day  The Ethanol segment produces and sells ethanol and distillers grains primarily to refiners and gasoline blenders. The company has 10 ethanol plants producing 1.2 billion gallons per day. Valero is the largest independent refiner in the United States. Valero also produces 1.3 billion gallons of ethanol a year. The company also operates a 50-megawatt wind farm; convenience stores as well as a credit card business.  Valero  Corporation was founded in 1955 and is headquartered in San Antonio, Texas.

Valero has maintained an incredible three-year growth rate of dividends of 40 percent. Valero currently ranks 2nd in yield within the large cap basic materials, oil & gas refinery and marketing category. The quarterly dividend for the March payment will be $0.70 versus the prior year rate of $0.60 per share. Valero Energy Corp. is a member of our Top 100 Dividend Stock List (see below).

top-100

The dividend will be paid at the new higher rate on March 7, 2017, to shareholders of record at close of business on February 15, 2017. Valero is currently priced at $65.76. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
2/15/2017 0.7
11/18/2016 0.6
8/9/2016 0.6
5/23/2016 0.6
2/5/2016 0.6
11/19/2015 0.5
7/31/2015 0.4
5/11/2015 0.4
2/9/2015 0.4
11/17/2014 0.275
8/18/2014 0.275
5/19/2014 0.25
2/10/2014 0.25
11/25/2013 0.225
8/12/2013 0.225
5/20/2013 0.2
2/11/2013 0.183
11/19/2012 0.16
8/13/2012 0.16
5/21/2012 0.137
2/13/2012 0.137
11/14/2011 0.137
8/15/2011 0.046
5/16/2011 0.046
2/14/2011 0.046
11/15/2010 0.046
8/16/2010 0.046
5/17/2010 0.046
2/12/2010 0.04


Quantitative
 Analysis:

We examine Valero upon our five key criteria, which include; 

Category Value Score
Dividend Yield 4.26% 52
Dividend Growth (3 to 7 year avg) 44.4% 23
Forward P/E 10.27 21.1
S&P Financial Rating BBB 160
Beta  1.25 200
Total Score   461

Additional quantitative information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate SPS 2017 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr lowest Yield % 5 yr max Yield %
4.26% 40% 48.7% 167.40 0.46 0.27 0.40 1.48% 4.38%

Positives;

  • Valero maintains an investment grade credit rating.
  • Valero has maintained an impressive three-year growth rate of dividends of 40 percent.
  • Valero’s dividend yield is above that of the S&P 500 Index.
  • Valero’s current dividend yield (4.26%) is above its ten-year average and near its all-time high.

Negative;

  • Valero maintains a beta of 1.25, higher than the average company.

 

Latest Earnings & Overall Analysis:

Valero issued its earnings data on January 31st. The company reported Q4 of $0.81 earnings per share, topping the consensus estimate by $0.07.  Total revenue for the quarter grew 7.4% year over year to $20 million from $18 million.  Full-year 2016 adjusted earnings came in at $3.72 per share. The bottom line beat expectations of $3.68 per share .  Sales revenues declined 13.8% year over year to $75.6 million.

The refining segment was the primary culprit. It reported $715 million of revenue for the  quarter in contrast to $876 million last year. The decline in the fourth quarter of 2016 was due primarily to narrower discounts for most sweet and sour crude oils relative to the Brent benchmark and weaker gasoline margins in some regions.The ethanol segment maintained income of $126 million on higher prices. Cash flow was strong as well for the quarter and the balance sheet remains solid.  The balance sheet has nearly  $5 billion in cash versus just over $3 billion in net debt.

One item of note with Valero is its important petition to the EPA for a change in the firm’s RIN obligations. The EPA will have to opportunity in late February to rule on the matter. The RIN, or also known as a renewable identification number is a number with 38 digits that is a proof of purchase seal for energy firms submitting data to the EPA as proof they’ve operated under the terms of the RFS. A favorable ruling this month would be seen as a large positive for refiners like Valero. For this year, Valero’s management has projected $750 million in RIN expense in 2017. Though this could change in Valero’s benefit. Many oil analysts are projecting that RIN expenses may come down by half, which would save Valero over $300 million this year.  Another issue for all refiners is the possible Border Adjustment Tax (BAT). This proposal is still being worked through Congress.

Valero key advantage is that it is the most diversified refinery in the U.S. Its refineries have the ability to process both heavy and light crude and at multiple locations.  With the new pipelines like Keystone getting the green light, it offers the ability for Valero to refine more heavy crude from up north. Valero offers investors a low risk entry into the energy sector with a very high dividend yield. The yield is also well covered with about 45% of net income going toward dividends.

 

Based on the firm’s consistent high earnings, above average dividend yield and investment grade rating, Valero still remains a top ranked firm within the sector.  It continues to qualify as a member of our  Top 100 Dividend Stocks list.  

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Valero Energy Corp. Dividend Yield Chart (Click to enlarge)

vlo3

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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