We rarely find fast-growing companies trading at inexpensive valuations because investors typically pay a premium for growth. That's what makes Valero Energy's (VLO 0.71%) current value proposition so unique. It projects to deliver one of the fastest earnings growth rates in the S&P 500 through next year. Yet it trades at a bottom-of-the-barrel valuation. Add in its above-average dividend, and it offers the best value proposition in the S&P 500 these days. Now could be a historic buying opportunity for the stock.

Here's a look at what the refining giant brings to the table.

An eye-opening value proposition

Valero Energy believes it sits atop the S&P 500 because of what it offers investors:

A slide showing Valero relative to other stocks in the S&P 500.

Image source: Valero Energy investor relations presentation.

As that chart shows, Valero is the only large-cap stock in the S&P 500 with investment-grade credit, a history of high stockholder returns, strong projected earnings growth through next year, and a high dividend yield. These features make it one of the best value propositions in the S&P 500, especially considering its rock-bottom valuation of 5.3 times next year's projected EBITDA to its current enterprise value (EV).

What really stands out about Valero is its combination of growth and income. Currently, 31 companies meet the criteria of large-cap, investment grade-rated companies with a history of high stockholder returns and double-digit projected EBITDA growth through next year. However, only Valero offers all that plus a more than 3% dividend yield (it's currently at 3.3%, nearly double the S&P 500's 1.7% yield). Usually, a company has a high dividend yield because it's allocating more of its cash flow to dividend payments than to growth-related investments. However, in Valero's case, its dividend yield is higher because it has a low valuation. 

What's fueling Valero's high growth rate

Valero Energy has been investing heavily in high-return capital projects to optimize its existing refineries and improve its margins. It's also expanding its renewable fuels production capacity. Valero expects these investments will grow its annual EBITDA by $1.2 billion to $1.7 billion when they're all in service by the end of next year, expanding its yearly earnings capacity to as much as $10.5 billion. That's more than 50% above its average EBITDA of $6.4 billion over the 2019-2021 timeframe.

One of the company's biggest projects is the third expansion of its Diamond Green Diesel joint venture with Darling Ingredients (DAR 2.48%). The partners currently produce roughly 700 million gallons of renewable diesel each year from recycled animal fats, used cooking oil, and inedible corn oil. The fuel is 100% compatible with existing engines and infrastructure and can reduce greenhouse gas emissions by up to 80%. Valero and Darling Ingredients are starting up a third facility to add another 470 million gallons to their capacity, which will provide them with a big earnings boost. 

Another important earnings driver is Valero's Port Arthur Coker project, which should enter service in the first half of next year. The company expects that investment to increase its refinery throughput capacity and improve turnaround efficiency, which should ultimately reduce costs and enhance its margins.

Finally, the company partnered with BlackRock (BLK -1.34%) and Navigator on a carbon sequestration project that should start service in 2024. Valero will be the lead shipper on the Navigator-operated system, connecting eight ethanol plants. That will allow Valero to produce lower-carbon ethanol, which should yield higher profit margins thanks to tax credits. Valero's ethanol EBITDA will go from an average of $0.25 per gallon to as much as $1 per gallon at the upper end of its projected range. That would provide a significant earnings boost to the country's second largest ethanol producer. Meanwhile, the project will supply Navigator with a steady income while allowing BlackRock to earn strong investment returns for its funds.

Catalyst-driven growth

Valero is at a crucial inflection point as its recent investments are about to pay off. The company is on track to complete two large-scale projects that could fuel 50% earnings growth by the end of next year. On top of that, it has another critical earnings growth driver under way that should further boost earnings in 2024 and beyond.

However, the market hasn't yet given the company credit for this growth, evidenced by its rock-bottom valuation multiple and higher dividend yield. N ow could be a historic buying opportunity for the stock as shares could soar along with its earnings. Add in its dividend income, and Valero looks like one of the best value propositions in the S&P 500 right now.