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Ranking 7 Refining Stocks Based on Their Dividend Yields

PART:
1 2 3 4 5 6 7 8
Part 4
Ranking 7 Refining Stocks Based on Their Dividend Yields PART 4 OF 8

Valero’s Dividend Yield: Ranks 3rd with Discounted Valuations

Valero’s dividend yield

Valero Energy (VLO) is the third-highest dividend yielding stock in the list of seven refining stocks. Valero is an American refining company with Refining, Midstream, and Ethanol business segments. The company’s market cap of ~$33 billion ranks it second among the seven companies being discussed in this series.

VLO has a current dividend yield of 3.7%. In 3Q17, VLO made a dividend payment of $0.70 per share. The dividend was announced on July 21, 2017, and paid on September 7. VLO has paid dividends consistently in the past three years. 

VLO’s dividend payments have risen during this period, as it made a dividend payment of $0.28 per share on September 17, 2014. VLO’s peer HollyFrontier’s (HFC) dividend payments have also risen in the past three years.

Valero’s Dividend Yield: Ranks 3rd with Discounted Valuations

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Valuations

Valero Energy (VLO) trades at a current forward PE (price-to-earnings) ratio of 14.4x. This ratio rose from 7.9x, which the company reported in 2Q14.

However, Valero currently trades below the peer average forward PE ratio of 16.0x. VLO is progressing on its growth path with the goal of creating an integrated downstream value chain. However, Valero’s earnings have been impacted by high compliance costs. VLO has incurred ~$403.0 million to purchase RINs (renewable identification numbers) in 1H17. 

Similarly, in 2016, VLO incurred RINs costs of ~$750.0 million, or ~21% of its operating margin. This cost is forecast to reach $750.0 million–$850.0 million in 2017. So, this cost is continually denting the company’s earnings. Like Valero, HollyFrontier’s (HFC) gross RINs cost stood at $149.0 million in 1H17. Similarly, PBF Energy (PBF) has been reeling under the RINs burden.

In our view, VLO is trading below its peer averages due to the RINs acquisition burden. Plus, RINs prices can be extremely volatile. For more information on RINs, please read Gauging the Impact of RINs on Refiners: Bane or Boon?

In the next article, we’ll look at Phillips 66 (PSX), which ranks fourth in terms of its current dividend yield.

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