Must-know: An overview of Valero's 2Q14 earnings (Part 5 of 6)
Valero’s recent market performance
Valero (VLO) recently declared a quarterly dividend of $0.275 per share or $1.10 annualized. The dividend represented an annual yield of 1.70% and year-to-date (or YTD) returns of ~2%.
The Energy Select SPDR ETF (XLE), an exchange-traded fund (or ETF) that targets the energy sector, has an annualized dividend of $1.68, representing a yield of 1.73% and YTD returns of 8.37%.
In comparison, the SPDR S&P 500 Trust ETF (SPY), with a yield of 1.8 % and YTD returns of 4.39%, has an annualized dividend of $3.58.
Why VLO underperformed the XLE and SPY
Profitability in the refining industry is determined by the revenues earned by selling finished products minus the cost of crude inputs. Until recently, refiners were buying lower-priced crudes such as West Texas Intermediates (or WTI) to produce refined product, which sold at better prices internationally.
However, since the start of the year, the WTI-Brent spread has lowered considerably. It has caused refinery margins to take a hit.
Also, the announcement about lifting restrictions from condensate export led to speculations as to what this would mean for refiners if the ban were to be loosened further.
A ban on domestic crude exports is currently an advantage for domestic refiners. If it’s removed, it could hurt refinery margins because refineries would then be competing with international markets for domestic crude, which could cause WTI to trade higher.
The Obama administration recently allowed Pioneer Resources (PXD) and Enterprise Product Partners (EPD) to export “condensate” super-light oil. The oil and gas industry speculates this to be a positive sign for further lifting of the ban—an advantage for exploration and production (or E&P) companies. However, this isn’t good news for refiners.
Continue reading the next part in this series to learn how VLO measures up to its competitors.
Browse this series on Market Realist:
- Part 1 - Must-know: Highlights of Valero Energy’s 2Q earnings
- Part 2 - Must-know: Valero’s 2Q financial performance
- Part 3 - Must-know: Valero’s operations and future production plans
- Basic Materials Industry
- Investment & Company Information