Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Valero Energy Partners LP (NYSE:VLP) has returned to shareholders over the past 4 years, an average dividend yield of 3.00% annually. Let’s dig deeper into whether Valero Energy Partners should have a place in your portfolio. See our latest analysis for Valero Energy Partners

How I analyze a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Does it pay an annual yield higher than 75% of dividend payers?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has dividend per share risen in the past couple of years?

• Is its earnings sufficient to payout dividend at the current rate?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

How well does Valero Energy Partners fit our criteria?

Valero Energy Partners has a payout ratio of 46.45%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 83.51%, leading to a dividend yield of 5.64%. However, EPS is forecasted to fall to $3.13 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Valero Energy Partners as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. In terms of its peers, Valero Energy Partners has a yield of 4.13%, which is high for oil and gas stocks.

Next Steps:

Keeping in mind the dividend characteristics above, Valero Energy Partners is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three key factors you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for VLP’s future growth? Take a look at our free research report of analyst consensus for VLP’s outlook.

2. Valuation: What is VLP worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether VLP is currently mispriced by the market.