Attention dividend hunters! Valero Energy Corporation (NYSE:VLO) will be distributing its dividend of US$0.80 per share on the 12 December 2018, and will start trading ex-dividend in 4 days time on the 19 November 2018. What does this mean for current shareholders and potential investors? Below, I will explain how holding Valero Energy can impact your portfolio income stream, by analysing the stock’s most recent financial data and dividend attributes.
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Valero Energy fit our criteria?
Valero Energy has a trailing twelve-month payout ratio of 29%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 29%, leading to a dividend yield of around 4.1%. In addition to this, EPS is forecasted to fall to $8.89 in the upcoming year.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Shareholders would have seen a few years of reduced payments in this time.
Relative to peers, Valero Energy generates a yield of 3.7%, 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 urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three important aspects you should further examine:
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.