Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Valero: The Cheapest Dividend Stock On The Planet?

By Contrarian Outlook (Brett Owens)Stock MarketsAug 17, 2022 05:08AM ET
www.investing.com/analysis/valero-the-cheapest-dividend-stock-on-the-planet-200628619
Valero: The Cheapest Dividend Stock On The Planet?
By Contrarian Outlook (Brett Owens)   |  Aug 17, 2022 05:08AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
VLO
-0.36%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

I’m proud to report that, for the first time in months, I “only” paid $100 for gas.

There was a catch. The pump had a $100 credit card limit!

Which begs the follow up question: Does your dividend strategist intentionally pump gas in the sketchiest neighborhoods he can find?

As a big guy in a Bills hat, who tends to traverse before the streetlights come on, perhaps I’m game for an adventure.

Fortunately for my wallet, my “soccer dad mobile” traverses a narrow grid. To the kids’ school. The gym. The park. Grocery store. One mile at a time.

A tank can last for weeks, which is helpful. A few fills ago a station in an, ahem, better neighborhood let me put a full $110 in there.

If this makes you think gee, we should buy stock in the companies charging these prices, we are on the same page. I can’t pump gas without fantasizing about refinery stocks—and (of course!) their rising dividends.

Most income investors forget about unglamorous oil refineries because they don’t understand them. They confuse them with energy producers, who drill for oil and natural gas and then sell the raw product. It’s their loss, because the best have quietly been growing profits and payouts like crazy.

These stocks form the unknown backdoor play on today’s energy bull market. Backdoor? Because you and I can’t use that raw product directly. We can’t dump a barrel of crude oil into our cars. We need “refined” gasoline.

Refineries buy oil from producers and turn it into gasoline, diesel fuel, heating oil and other end products. They are the perfect types of stocks to own with high energy prices.

And while it’s a bull market in oil, it is a bear market in the number of refineries here in America. We have fewer and fewer facilities to do the work of turning raw product into end product.

These are big sprawling facilities that nobody wants in their own backyards. There hasn’t been a major facility built on American soil since 1976, and more than half of all US refineries have been shut down in the last 25 years!

Woe to the refinery construction companies, but good for those already built. Either way, should we care? Why not outsource this business and simply rely on foreign refiners?

Maybe it didn’t matter when America was a net importer of crude oil. But with that all upside down and North America gushing oil and consuming such a large amount of the finished product, there are big economic advantages to refining here at home.

Plus, this isn’t the easiest stuff to transport across continents. And with the global supply chain a mess, and naval war games on the rise, why risk it?

Blue chip refiner Valero (NYSE:VLO) is the big dog in the space. This is the stock we contrarians salivate over.

Regulators aren’t approving any more refinery real estate and Valero already owns the “beachfront properties.” If we close our eyes and buy VLO today, chances are high that shares will trade much higher in five or ten years.

But the path from here to there is likely to be greasy. If we buy Valero right, we can quickly double our money. Investors who swing too early, however, can be frustrated. Sure, VLO’s payout tends to act as a “dividend magnet” that eventually pulls its share price higher, every time. But there can be wild swings, too:

Valero’s “Dividend Magnet” Ebbs and Flows
VLO Dividend Magnet
VLO Dividend Magnet

VLO bounces around with crude prices. Day-to-day and even month-to-month can be stomach-churning.

But VLO is due for a dividend increase. We can see this reflected in the company’s recent cash flow “spike.” Talk about a catalyst! That plateaued payout should get moving again soon enough:

Cash Flow Gains: Catalyst for Next Dividend Hike

VLO Overdue Dividend Increase
VLO Overdue Dividend Increase

Why hasn’t management already boosted its dividend, given these cash flow gains? Probably for the same reason I haven’t formally recommended it (outside of a quick 44% spring fling in Dividend Swing Trader).

Because we’re waiting to see how severe this recession is going to be.

Yes, shares trade for just five times free cash flow. They are ridiculously cheap.

But the Federal Reserve is hiking rates and trimming its balance sheet as the economy slows down. A recession is a sure thing—a real one, not this “technical” recession in the headlines but one where people lose jobs and stop spending…

…And stop driving. This is already occurring as $100 tank fill-ups prompt some to change their ways–those that drive more than a mile at a time, that is!

Long-term I love VLO. It’s a dirt-cheap dividend that is likely to grow again in the years ahead. Its stock price should follow.

Between here and there I’d rather see us stake our position near a low. When that buy signal comes in, you’ll be the first to know.

In the meantime, I have seven other dividend growers that I do like today. I know that sounds crazy because I haven’t liked much of anything since last October. But these are recession-resistant dividend stocks with 100% upside.

Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement."

Valero: The Cheapest Dividend Stock On The Planet?
 

Related Articles

Jesse Cohen/Investing.com
Expect A Wild October By Jesse Cohen/Investing.com - Sep 30, 2022 16

October is historically the U.S. stock market’s most volatile month Market focus on nonfarm payrolls report, CPI, Q3 earnings Brace for more violent swings in the coming...

Valero: The Cheapest Dividend Stock On The Planet?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email