In 1H17, Valero Energy (VLO) generated $2785 million in cash from operations. The company had cash outflows of $880 million in the form of capital expenditure and deferred turnaround and catalyst costs and $627 million in the form of dividends.
Valero’s liquidity surplus
Valero’s cash outflows amounted to around $1507 million in 1H17, considering the capex and dividend outflows. This led to a surplus of around $1278 million (the difference between cash from operations and outflows due to the capex and dividend).
The surplus was utilized to fund share repurchases. Valero’s share repurchases stood at $660 million in 1H17. The remaining portion of the surplus was added to cash reserves. VLO’s cash balance rose from $4816 million at the beginning of 1H17 to $5207 million at the end of 1H17.
VLO’s cashflow surplus as a multiple of its cash flow from operations, stood at 0.5x. Comparatively, Marathon Petroleum (MPC) saw a cash flow surplus of 0.1x in 1H17. Contrarily, Andeavor (ANDV) and Phillips 66 (PSX) witnessed a cash flow shortfall of 1.1x and 0.2x, respectively, in 1H17. For further details on refiners’ cash flow shortfall or surplus, you can refer to “Comparing Refiners’ Cash Flow in 1H17”
So, are VLO’s high shareholder returns justified?
Valero’s shareholder returns have risen steadily. A big portion of the company’s returns have been share repurchases. Valero has reduced its weighted average shares outstanding by over 120 million or 21% since 2011. Thus, Valero has increased value for its shareholders steadily over all these years. Plus, the company also continues to pay dividends to its shareholders.
In spite of providing high shareholder returns, Valero holds a presumably sufficient cash reserve. This could help the company boost growth and manage volatile refining environments. Plus, in the past few years, the company’s cash flows have been mostly in surplus, except for few quarters. Thus, the company has managed to give high shareholder returns without compromising its liquidity position – a favorable situation for shareholders as well as creditors.
Speaking of dividend, let’s move on to next part to know about analysts’ estimate of dividend payment in 4Q17.