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Valero Keeps Gushing Profits And A 4%+ Dividend Yield

Feb. 05, 2019 11:44 AM ETValero Energy Corporation (VLO)14 Comments
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  • Valero smashed through analyst estimates for the fourth quarter.
  • The impressive performance resulted mostly from new pipelines, which enabled Valero to purchase grades of crude oil at deeply discounted prices.
  • Valero has exceeded the analysts’ estimates on both lines for 11 consecutive quarters.

By Aristofanis Papadatos

Valero Energy (NYSE:VLO) reported its results for the fourth quarter last week. The company smashed the analysts’ estimates, as it achieved earnings per share that were essentially double the consensus ($2.12 vs. $1.07).

Valero is one of the 294 dividend-paying energy stocks. The big question is whether the stock is attractive at its current level.

Business Overview

Valero is an oil refiner. Now that Marathon Petroleum (MPC) has acquired Andeavor, Valero has become the second largest petroleum refiner in the U.S. It owns 15 refineries in the U.S., Canada and the U.K. and has a total capacity of 3.1 M barrels per day, which is almost equal to the capacity of Marathon. Valero also has a midstream segment, Valero Energy Partners LP, but its contribution to the total earnings is less than 10%. As a result, Valero should be viewed as an almost pure refining business.

The stock of Valero has incurred heavy losses since early October, as it has lost 30% during this period. The downtrend has absolutely coincided with the collapse of the oil price, from $75 in early October to $55 now. As low oil prices sometimes signal slow economic growth ahead, the collapse of the oil price may have affected the stock of Valero to some extent. However, refiners usually benefit from low oil prices, which increase the demand for refined products and thus enhance the refining margins. Therefore, the steep decline of Valero should be mostly attributed to other factors.

Indeed, a major reason behind the decline of Valero in recent months is the steep decline in refining margins during this winter. Since the summer, U.S. refining margins have plunged almost 50%, from about $14.49 per barrel in the summer to $7.93 per barrel now.

On the one hand, the decrease can be

This article was written by

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Sure Dividend helps individual investors find high quality dividend growth stocks with strong competitive advantages suitable for long-term holding. The authors who write for Sure Dividend on Seeking Alpha are as follows:Bob CiuraBen ReynoldsJosh Arnold

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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