Valero Energy (vlo) Is A Top Dividend Stock Right Now: Should You Buy?

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and, of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Valero Energy (VLO) is headquartered in San Antonio, and is in the Oils-Energy sector. The stock has seen a price change of 19.26% since the start of the year. Currently paying a dividend of $1.13 per share, the company has a dividend yield of 2.47%. In comparison, the Oil and Gas - Refining and Marketing industry's yield is 2.49%, while the S&P 500's yield is 1.36%.

Looking at dividend growth, the company's current annualized dividend of $4.80 is up 6.2% from last year. Over the last 5 years, Valero Energy has increased its dividend 3 times on a year-over-year basis for an average annual increase of 3.05%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Valero Energy's current payout ratio is 42%, meaning it paid out 42% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for VLO for this fiscal year. The Zacks Consensus Estimate for 2026 is $12.27 per share, with earnings expected to increase 15.65% from the year ago period.

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers its shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, VLO is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of #3 (Hold).

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This article originally published on Zacks Investment Research (zacks.com).

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