Micro Cap Ideas

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Berkshire holding - >>> Vitesse Energy (VTS)


https://finance.yahoo.com/news/11-yielding-dividend-stocks-look-133250100.html


First up is Vitesse Energy, a non-operator that owns financial interests in oil and gas wells drilled in the US. It’s simpler than it sounds – Vitesse acts as an investor, owning hydrocarbon wells while leaving the oil and gas drilling and exploitation to third-party firms. Vitesse generates revenue from the development of non-operated assets in oil and natural gas. The company acquires leasehold properties and converts them into active drilling operations, tapping into cash flow from both the leases and the oil and gas production.

This has proven to be a sound business mode, and has been profitable for Vitesse for the last 10 years. The company’s portfolio includes over 50,000 net acres and approximately 6,500 actively producing oil and gas wells. For most of its existence, Vitesse was privately held, and during that time it retuned $124 million to its shareholders. The company from the Jefferies Financial Group became a public entity in January of this year, and since then has continued its policy of capital return, using a high-yield dividend as the vehicle.

That dividend was last declared on May 4, for 50 cents per common share. That declaration marked the firm’s second dividend payment as a public entity. With a forward annualized rate of $2 per share, the dividend gives an impressive yield of 11.3%, far above the current inflation rate, ensuring investors a substantial real rate of return.

The dividend is supported by the company’s non-GAAP earnings result, which came in a 53 cents per share for 1Q23, beating the forecast by 29 cents. Vitesse’s Q1 results in revenue and GAAP earnings were less impressive, however. The firm’s top line of $57.96 million was $2.87 million below expectations, and the GAAP EPS result came in at a net loss of $1.67, well below the 9-cent loss that had been forecast.

This doesn’t worry Northland analyst Donovan Schafer, who notes that Vitesse’s adjusted EBITDA of $40.1M beat consensus of $36.9M and his estimate of $36.5M. Schafer goes on to describe recent earnings as ‘boring,’ and writes: “VTS is meant to be a steady dividend payer with upside over time from commodity price exposure and opportunistic M&A. Trading at ~$18, the dividend is ~11%, which investors can collect while sitting in a position that gives upside commodity price exposure and limited downside…”

In Schafer’s view, this justifies an upgrade for the shares, from Neutral to Outperform (i.e. Buy), and his price target of $23 suggests a one-year upside potential of ~30%. Based on the current dividend yield and the expected price appreciation, the stock has ~41% potential total return profile. (To watch Schafer’s track record, click here)

Overall, VTS stock gets a Strong Buy rating from the Street’s analyst consensus, based on 3 unanimously positive reviews. The shares are trading for $17.72 and their $22.67 average price target implies a gain of ~28% in the next 12 months.

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