Recent Buy – VLO

Right out of the gates with the new month, I added to my Valero position.  It wasn’t an average down scenario, but rather a reaction to geopolitical events.  Since May the stock has been on an upward trend.  At month end it dropped to $66.69 – which I missed, but  wound up adding on August 1st at $69.64 which locks in a yield of 4.02% on my new shares.  By adding prior to the record date, they are also eligible for the September dividend.

The news cycle last week was on the Venezuela election – or notably any US reaction (sanctions) to it.  The reason for my hesitation in purchasing was to understand the impact of possible oil import sanctions on Gulf Coast refineries.  It turns out only one of Valero’s refineries has significant exposure to oil from Venezuela, basically on par with Phillips 66 (PSX).  Subsequently – contrary to Trump’s earlier pronouncements – the actual response has been relatively muted thus far.  Perhaps the administration recognizes potential impacts to the economy (refinery jobs in Trumpland or higher gas prices nationally) with a more bombastic approach.  The day following my purchase, VLO announced an agreement to export refined fuels to Mexico through iEnova (SRE subsidiary) with an option to attain 50% stake in storage facilities in Vera Cruz, Mexico City and Puebla.

Last week The Dividend Guy also published an an analysis on Seeking Alpha that reinforced my conclusions – albeit via differing metrics.  Although in concurrence with his findings, I would add that Valero also spawned Nustar Energy (NS – 2006) in addition to his mention of CST (now ANCTF) and Valero Partners (VLP).

Therein lies my rationale for my first August purchase.

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7 thoughts on “Recent Buy – VLO

  1. Oil and gas company hasn’t really recovered. Renewable energy is still a distant dream, eventually the top 20 companies/country will control everything, then consolidate to arbitrary increase the price. I’m going to add some refining companies as soon as I hit my saving limit.

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  2. I have to agree with DivGuy regarding this not being a core holding so this one remains at less than 1%. But if imports from Venezuela are impacted, then VLO could easily switch to Canadian or Mexican oil, the wild card being transportation. They might have an earnings hit for a quarter if that were to occur.

    Waiting for your trip recap!

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  3. Energy, though making a nice comeback from 2016 still remains on shaky ground. That being said, there is still room for a play in most DGI portfolios. Nice current yield you added with this pick up. Keep those dividends rolling in.

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  4. I appreciate it. I agree but my other reason to be hesitant in this space is that I remain overweight CVX and geopolitical issues tend to have outsized impacts. But VLO appears to have recovered thus far. Still, if the dividends continue to roll … Great! If not, by being less than 1% of the portfolio the downside would be minimal (though I’d still complain) 🙂

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  5. The wild cards, of course, being (geo)politics and hedging strategy. They rarely get burned on their hedges which can add a few points to their margins so I’m comfortable with this area (especially if they played dollar weakness). With the FERC now having a quorum, their pipeline (and subsequent dropdown strategy) can advance. Leaving Venezuela as the elephant in the room. As Gulf Coast governors (likely at the urging of the refiners) now pushing back on potential sanctions due to the jobs impact, it’s becoming apparent that this issue will not be as severe as originally priced in by the market.

    Might even be a decent options play? (I Didn’t check this angle). Thanks for the comment!

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