Photo credit: Flickr user Mike Mozart. 

While oil companies are bemoaning the continued weakness in oil prices, that's not a complaint anyone will hear Valero Energy (VLO 1.23%) make. Instead, the refining company is lapping up cheap oil and turning it into higher value gasoline and diesel. That's fueling tremendous growth in profitability for the company, which was evident when it reported third-quarter results on Wednesday morning.

Cashing in on crude's weakness
Valero reported third-quarter net income of $1.4 billion, or $2.79 per share, which was not only $0.13 per share better than the consensus estimate, but it was also well above the $2.00 per share it earned in the year-ago quarter.

Fueling this increase was the company's refining business, which enjoyed a 38% increase in its throughput margin per barrel after it rose from $11.81 in the third quarter of last year to $14.38 per barrel this past quarter. This increase was primarily driven by stronger gasoline margins, resulting from both stronger demand and weaker oil prices.

The company's throughput volumes average 2.8 million barrels per day, which was in line with the third quarter of last year thanks to the fact that its refineries operated at 96% of throughput capacity during the quarter. Also worth noting is that the company exported 330,000 barrels per day of refined petroleum products during the quarter, which was a record for Q3.

The only weakness during the quarter was the company's ethanol segment, after its operating income decreased from $198 million in the year-ago quarter to just $35 million in the third quarter. This decline was mainly attributable to a drop in ethanol prices.

Fueling shareholder distributions
Thanks to its surging income and cash flow, Valero continues to boost shareholder distributions, with the company announcing another dividend increase, this time of 25%, boosting its quarterly payout to $0.50 per share. So far this year the company has increased its dividend by a whopping 80% while more than doubling its stock buyback and still investing $1.7 billion back into the business. Thanks to this latest dividend increase, the company is on pace to pay out 75% of its net income this year via stock buybacks and dividends.

Strategizing for what lies ahead
Valero also continues to use its MLP, Valero Energy Partners (NYSE: VLP), to create incremental value for its investors. So far this year the company has dropped down $1.14 billion of assets to Valero Energy Partners, which is giving it extra cash to both invest back in the business as well as to return to shareholders. Looking ahead, the company estimates that it has upwards of $1 billion of MLP-eligible EBITDA relating to existing assets that could eventually be dropped down to Valero Energy Partners. Such transactions could create a substantial amount of value for the company, given that MLP investors value these assets at a much higher value than do refinery investors. So Valero can not only capture that value disconnect, but it can also generate substantial cash proceeds.

Investor takeaway
Valero is flat out thriving on the combination of low oil prices and the strong demand for gasoline resulting from those lower prices. That's enabling the company to fuel strong cash distributions to investors, including another boost to its dividend. Those cash distributions appear poised to continue heading higher, not only because of the continuation of those two trends, but also given the embedded potential to drop down assets to Valero Energy Partners. Suffice it to say it's a good time to be an investor in Valero these days.