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Do These 3 Checks Before Buying Valero Energy Corporation (NYSE:VLO) For Its Upcoming Dividend

Simply Wall St

It looks like Valero Energy Corporation (NYSE:VLO) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 11th of February will not receive the dividend, which will be paid on the 4th of March.

Valero Energy's upcoming dividend is US$0.98 a share, following on from the last 12 months, when the company distributed a total of US$3.92 per share to shareholders. Last year's total dividend payments show that Valero Energy has a trailing yield of 4.7% on the current share price of $83.78. If you buy this business for its dividend, you should have an idea of whether Valero Energy's dividend is reliable and sustainable. As a result, readers should always check whether Valero Energy has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Valero Energy

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Valero Energy paid out more than half (61%) of its earnings last year, which is a regular payout ratio for most companies.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:VLO Historical Dividend Yield, February 6th 2020

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see Valero Energy's earnings per share have been shrinking at 3.5% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Valero Energy has delivered 21% dividend growth per year on average over the past ten years. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

Is Valero Energy worth buying for its dividend? We're not overly enthused to see Valero Energy's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. In sum this is a middling combination, and we find it hard to get excited about the company from a dividend perspective.

Wondering what the future holds for Valero Energy? See what the 13 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.