Valero Raises Dividend, Gives Q4 Update - Analyst Blog
January 23 2014 - 2:50PM
Zacks
The board of directors of
Valero Energy Corporation (VLO) recently announced
an 11.1% increase in its quarterly dividend, from 22.5 cents to 25
cents per common share. This translates into an annual dividend of
$1.00 per share for 2014, up from 90 cents per share for 2013. The
annual dividend yield is now 1.8%. The first increased quarterly
dividend will be paid on Mar 12, 2014 to shareholders of record as
of Feb 12.
Separately, Valero announced that it expects to report net income
in the range of $2.20 to $2.40 per share for the fourth quarter of
2013. The company is slated to release its fourth quarterly numbers
on Jan 29.
Earlier, Valero spun off 80% stake from its retail arm –
CST Brands Inc. (CST) – through a tax-advantaged
distribution to shareholders, to unlock value on May 1, 2013. The
spin-off of the company's retail arm generated an immediate net
cash benefit of $500 million, after shelling out $220 million in
taxes. The remaining 20% was divested by the company on Nov 14,
2013. We feel the move would help the company to concentrate on its
industry-specific strategies.
Consequently, the fourth quarter results include a nontaxable gain
of $325 million, or 60 cents per share, related to the disposition
of Valero’s retained interest in CST Brands. Excluding this
item, Valero’s fourth quarter net income is expected in the range
of $1.60 to $1.80 per share.
Valero’s refining segment operating income is expected to be nearly
as high as the fourth quarter of 2012, primarily attributable to
higher throughput volumes and slightly wider discounts for sour
crude oil. In addition, Valero’s ethanol segment operating income
is expected to be significantly higher year over year in the fourth
quarter due mainly to higher gross margins and production
volumes.
Among all the independent refiners, Valero offers the most
diversified refinery base with a capacity of 3.0 million barrels
per day in its 16 refineries throughout the U.S., Canada and the
Caribbean. More importantly, Valero is best positioned to profit
from increased refining margins mainly on account of its strategic
refinery structure that enables it to use cheaper oil for over
one-half of its needs.
Further, in Dec 2013, the company came out with an initial public
offering for its logistics master limited partnership (MLP) –
Valero Energy Partners LP (VLP). The MLP will not
only enable Valero to monetize its existing infrastructure, but
would also offer a favorable financing option for future logistics
projects.
Valero remains optimistic on the ongoing economic growth projects.
These are expected to drive earnings in the future. The company
also replaced all imported light sweet crude oil used at its Gulf
Coast and Memphis, Tennessee refineries with cheaper North American
crude oil recently.
However, Valero’s earnings decreased 70% in the third quarter of
2013 from the prior-year quarter. Lower refining throughput margins
in each of the company’s regions and higher refining operating
expenses can be blamed for this disappointment. Refiners in the
U.S. generally face uncertainty regarding future regulations
pertaining to greenhouse gas emissions and the potential for higher
requirement of biofuels.
Valero currently carries a short-term Zacks Rank #2 (Buy). Among
its peers, a better-ranked stock is Clayton Williams
Energy, Inc. (CWEI), with a Zacks Rank #1 (Strong
Buy).
CST BRANDS INC (CST): Free Stock Analysis Report
WILLIAMS(C)ENGY (CWEI): Free Stock Analysis Report
VALERO ENERGY (VLO): Free Stock Analysis Report
VALERO EGY PTNR (VLP): Free Stock Analysis Report
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