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Valero: A Conviction Buy At An All-Time High Dividend Yield

Published Wed, 12 Jun 2019 07:57:37 -0400 on Seeking Alpha

Just like the other major U.S. refining stocks, Valero Energy (VLO) has been beaten to the extreme by the market lately due to some headwinds. The stock has shed 17% since the end of April and 38% since it peaked in October. As a result, the refiner is now trading at just 6.7 times its next year’s earnings.
In addition, Valero's dividend yield spiked to an all-time high just above 5%. You can see our full list of 5%+ yielding dividend stocks here. Valero stock has recovered slightly in recent days, but the stock still offers a high yield of 4.8%.
As the stock has a major growth catalyst ahead, which will outweigh the recent headwinds, it is likely to offer excessive returns to its shareholders from its current price.
Business Overview
Valero has 15 refineries in the U.S., Canada and the U.K., with a total refining capacity of 3.1 million barrels per day. It used to be the largest refiner in the U.S. but that changed after the acquisition of Andeavor by Marathon Petroleum (MPC), which now has marginally higher refining capacity than Valero. The latter also has a midstream segment, Valero Energy Partners LP, but this segment has a small contribution to the total earnings and hence Valero should be viewed as a nearly pure refiner.
All the U.S. refiners posted impressive earnings in the fourth quarter but poor results in the first quarter. In the fourth quarter, their margins skyrocketed thanks to the markedly cheap input of refineries, as the Canadian crude supply... Read more