Friday, April 29, 2016

Recent Transfer: Valero Energy Corporation

Founded in 1955 and based in San Antonio, Texas, Valero Energy Corporation (NYSE:VLO) is an independent petroleum refining and marketing company. VLO's refineries produce conventional and premium gasoline, including gasoline meeting the specifications of the California Air Resources Board. VLO's ethanol segment produces ethanol and distillers grain.

This is the final position I'm transferring while consolidating my portfolios containing dividend paying stocks. In these posts I've been capturing past transactions and dividends received, along with giving reasons why I like the stocks. The most pleasing aspect of all is that DivGro's projected annual dividend income (PADI) received a significant boost.

So far, I've consolidated these stocks from my Roth IRA account:
The final stock I'm consolidating is VLO, a Dividend Challenger with a 6-year streak of dividend increases. A member of the Energy Sector, VLO pays quarterly dividends of 60¢ per share in the months of March, June, September and December. At the current share price of $62.58, the stock yields 3.85%.

Here is a 1-year chart showing my buy prices:



The 2 buys I'm transferring today are connected with red dashed lines. Average cost basis is $61.74, while yield on cost (YoC) averages to 3.51%. The timing of the first buy was quite awful. Fortunately, I could somehow make up for that with a larger buy near the 52-week low price.

Transactions
2015-08-18  Bought: 14.39472 shares of VLO at $69.47 per share:$1,000.00
2015-12-17Dividend on 14.39472 shares at 50¢ per share:$7.20
2016-02-19Bought: 25.60528 shares of VLO at $57.39 per share:$1,469.48
2016-03-03Dividend on 14.39472 shares at 60¢ per share:$8.64
                                                               
 Total Capital Invested $2,469.48

Total Dividends Received:$15.83

With this transfer, DivGro's projected annual dividend income (PADI) increases by $96.00 and I'm adding $15.83 in past dividends to DivGro's total dividend income.

Ratings and Fair Value Estimates for VLO


Following is a table containing updated ratings of VLO from various sources:
 Morningstar Ratings (***--) Credit Rating: BBB+ 
 Dividend.com's DARS Rating  3.3/5 (Neutral)
 TheStreet Ratings Rating  Buy [B+]
 The Motley Fool's CAPS Rating  (****-)
 Thomson Reuters StockReport+ (10/10) Positive 
 S&P Capital IQ Stock Report Strong Buy (*****) Quality Ranking: B 
 Zacks Rank and VGM Style Score 4-Sell (VGM:C)
 Tipranks Analysts Consensus Rating  Moderate Buy
  †combined Value/Growth/Momentum score

Morningstar's fair value estimate of VLO is $68.00, whereas S&P Capital IQ calculates a fair value of $64.80. According to Tipranks, based on 4 ranked analysts offering 12-month price targets for VLO, the average price target is $83.25. Finally, using a Comparative Analysis based on EBITDA, courtesy of finbox.io, VLO has a fair value estimate of $64.63 (see below).

The median of these valuations is $66.40 which means VLO is trading at a discount of about 6% to fair value.


Why VLO?


Here are some reasons why I like VLO:
  1. VLO's dividend yield of 3.85% is attractive, as is the 10-year dividend growth rate of 25.6%. The company has been increasing dividends regularly and often more than once a year, including 3 times in 2015!
  2. According to gurufocus, VLO's payout ratio is quite low at 21%, which means there is room for further dividend increases in the near future.
  3. VLO has the most diversified refinery base among all the independent refiners. Capacity is 3 million barrels per day. Also, VLO refines cheaper, lower-quality oil with better profit margins.
  4. On January 28, VLO reported Q4 2015 and fiscal 2015 results, beating EPS expectations by a very wide margin of 23.4%. The company delivered EPS surprises in each of its last 9 quarters
  5. VLO is trading at a very low forward P/E ratio of just 9. With refining margins likely to get the usual summer gasoline boost, VLO is in a good position to perform well in the next few months.  
Do you think VLO has good prospects as a dividend growth stock? Dividend increases have been fast and furious, to say the least! Please share your thoughts in the comments section below.

4 comments :

  1. I like VLO. I have it in my portfolio and plan on buying more shares. They report earnings May 3 so I would wait before buying more shares after earnings (in case there will be a sell off).

    ReplyDelete
    Replies
    1. Hi Martin -- thanks for commenting. Sounds like you think the chances for an earnings miss is larger than not... or that an earnings beat will not cause the stock to pop. Hope it works out for you! I might follow you in buying more shares if the stock price drops a lot!

      Delete
  2. Hi Ferdi, I picked VLO up yesterday at $55.57. I think it still can go a bit lower but that was a hard price to pass up. This is my first installment so will be watching for more.

    ReplyDelete
    Replies
    1. Mike -- that's a great cost basis! I agree it could go lower still, but who cares -- in the long run it should do great! Take care and best of luck with your investments.

      Cheers
      FerdiS

      Delete

Contact Form

Name

Email *

Message *

Follow by Email