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Does Valero Energy Stock Look Attractive?

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Jun. 11 2019, Published 10:07 a.m. ET

Valero Energy’s dividend yield

Valero Energy (VLO) is the second-best dividend yielding stock among refiners. PBF Energy (PBF) has the best dividend yield of 4.84%. However, the company has weak financials and earnings expectations. We’ll discuss Valero Energy’s dividend yield and stock position.

Valero Energy has the second-largest market cap of $32 billion with a dividend yield of 4.81%. Valero Energy stock has fallen 12% in the second quarter. Valero Energy has made a dividend payment of $0.9 per share in the second quarter—13% YoY growth. The dividend was announced on April 30 and paid on June 4. To increase shareholder returns, Valero Energy repurchases shares. In the first quarter, Valero Energy repurchased $36 million worth of shares.

Marathon Petroleum (MPC) and Phillips 66 (PSX) have lower dividend yields at 4.5% and 4.2%, respectively.

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Valuations

Valero Energy trades at a current forward PE ratio of 5.3, which is just below the peer average of 5.4x. The current ratio is due to the decline in the stock price in the second quarter. Marathon Petroleum and Phillips 66 trade at forward PE ratios of 5.8x and 6.7x, respectively—above the average.

Valero Energy has sound financials. The company’s net debt-to-EBITDA ratio was at 1.2x, while the total debt-to-capital ratio was at 32% in the first quarter. Both of the debt ratios were below the industry average—a favorable scenario. The company had adequate cash reserves in the first quarter.

Valero Energy focuses on expansion activities. The company targets an incremental annual EBITDA of ~$1.2 billion–$1.5 billion by 2022 from the growth projects. Analysts expect Valero Energy’s earnings to increase next year. Analysts expect the company’s EPS to rise 62% in 2020.

Valero Energy seems attractive with a high dividend yield and low valuations. The company has solid financials and growth prospects.

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