Valero Energy Corporation (NYSE:VLO) Stock Goes Ex-Dividend In Just 4 Days
It looks like Valero Energy Corporation (NYSE:VLO) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 5th of August will not receive this dividend, which will be paid on the 4th of September.
Valero Energy's next dividend payment will be US$0.90 per share. Last year, in total, the company distributed US$3.60 to shareholders. Calculating the last year's worth of payments shows that Valero Energy has a trailing yield of 4.2% on the current share price of $84.79. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out 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 (56%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 48% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Valero Energy's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Valero Energy, with earnings per share up 4.0% on average over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Valero Energy has increased its dividend at approximately 20% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Has Valero Energy got what it takes to maintain its dividend payments? While earnings per share growth has been modest, Valero Energy's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Wondering what the future holds for Valero Energy? See what the 14 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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