Be Sure To Check Out Valero Energy Corporation (NYSE:VLO) Before It Goes Ex-Dividend

Valero Energy Corporation (NYSE:VLO) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Valero Energy's shares before the 20th of November in order to receive the dividend, which the company will pay on the 20th of December.

The company's next dividend payment will be US$1.07 per share. Last year, in total, the company distributed US$4.28 to shareholders. Calculating the last year's worth of payments shows that Valero Energy has a trailing yield of 3.1% on the current share price of US$140.02. If you buy this business for its dividend, you should have an idea of whether Valero Energy's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Valero Energy

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Valero Energy paid out a comfortable 38% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 23% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Valero Energy earnings per share are up 9.7% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Valero Energy has increased its dividend at approximately 16% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Valero Energy an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Valero Energy is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Valero Energy is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Valero Energy, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Valero Energy is facing. We've identified 2 warning signs with Valero Energy (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.