There is a lot to be liked about Valero Energy Corporation (NYSE:VLO) as an income stock. It has paid dividends over the past 10 years. The company is currently worth US$35b, and now yields roughly 4.3%. Should it have a place in your portfolio? Let’s take a look at Valero Energy in more detail.
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Here’s how I find good dividend stocks
If you are a dividend investor, you should always assess these five key metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has the amount of dividend per share grown over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How does Valero Energy fare?
Valero Energy has a trailing twelve-month payout ratio of 44%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 47% which, assuming the share price stays the same, leads to a dividend yield of around 4.5%. Furthermore, EPS is forecasted to fall to $6.97 in the upcoming year.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Although VLO’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Relative to peers, Valero Energy has a yield of 4.3%, which is high for Oil and Gas stocks.
Keeping in mind the dividend characteristics above, Valero Energy is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three essential aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for VLO’s future growth? Take a look at our free research report of analyst consensus for VLO’s outlook.
- Valuation: What is VLO worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether VLO is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.