Vitesse Energy stock: How safe is the 9% dividend yield?

Vitesse Energy (VTS) stock price has done well after being spun out from Jefferies in 2023. It has soared from a low of $12.18 to a record high of over $26.70, helped by the robust energy prices. 

Vitesse is a top dividend payer

Vitesse Energy is a leading player in the energy sector that was recently spun off as a separately traded company from Jefferies, the giant financial services firm.

Unlike companies like Chevron and Exxon Mobil, Vitesse does not drill its oil and gas. Instead, the firm acquires and develops fields that are then used by leading operators in the industry. It owns fields in North Dakota, Montana, Colorado, and Wyoming. It has interests in 7,018 productive wells that produces 13.5 MBoe/d.

This business model ensures that the company has higher margins than other players in the energy sector. In its most recent results, the company had a gross margin of 80.3%, higher than the sector median of 44.65%. 

Its EBIT margin stood at 22.90%, higher than the sector median of 19.6% while its EBITDA margin was 63.6%, higher than the sector’s average of 34%. In contrast, ExxonMobil, the biggest oil and gas company in the US, has a gross profit margin of 31% and an EBITDA margin of 20.5%.

Vitesse has other benefits for investors. It pays a fixed dividend yield of 9%, higher than most dividend stocks and ETFs like the Schwab US Dividend Equity Fund (SCHD) and the SPDR US Dividend Aristocrats ETF (UDVD). 

Vitesse recent earnings

The most recent financial results shows that the company was doing well in the second quarter of this year. Its net income stood at $10.9 million during the quarter while its adjusted net income jumped to $11.7 million. 

Vitesse Energy had an adjusted EBITDA of over $43.1 million while its cash flow from operations rose to over $35.2 million. This growth happened as it produced over 13,500 barrels of oil equivalent per day. 

Analysts expect that Vitesse Energy will continue doing well, helped by supportive oil prices and its hedges. The average estimate is that the company’s revenue will come in at $65 million in the current quarter, an 18% increase from the $55 million it made in the same period in 2023. 

Analysts also expect its revenue to increase to $70.34 million in Q4. If this is correct, then its annual revenues will be $269 million, higher than the $233 million it made in 2023. For 2025, analysts see the company’s revenue rising to almost $300 million.

These estimates mean that Vitesse Energy’s business is expected to do well. This trend will continue if oil prices remains at an elevated level. 

Oil has remained at higher levels this year. Brent was trading at $80 while the West Texas Intermediate (WTI) rose to $77.7. These prices could continue rising as tensions in the Middle East continues rising. 

Most analysts believe that Israel and Irab could have some confrontation, especially after Netanyahu’s speech in Congress. 

Also, the upcoming Federal Reserve interest rate cuts could support oil prices by influencing demand. All this means that oil companies like Vitesse Energy could continue doing well. 

Fed cuts could also impact Vitesse Energy’s stock because they will reduce the payouts investors receive by investing in the bond market. Indeed, the yields of the 10-year and 30-year Treasuries has dropped recently.

Most analysts expect that the Vitesse Energy stock price has more upside. 4 of the five analysts who follow the stock have a buy rating. The average stock target is $27.15, 20% above Friday’s close of $23.12.

Therefore, Vitesse Energy is a company with a strong dividend yield, a good balance sheet, and is in an industry that is doing modestly well. The only key risk to remember is that it is a highly illiquid stock with a volume of just 76,540 on Friday. Its average volume stood at 176,000.

Vitesse Enervy stock price analysis

Turning to the daily chart, we see that the Vitesse Enervy share price bottomed at $12.18 in January last year and then soared to a record high of $26.70. It recently suffered a harsh reversal and bottomed at $22.15, its lowest point on August 5th. As it dropped, it moved below the 23.6% retracement point. 

The stock also dropped below the key support level at $24.6, its highest level on June 7th last year, and $23.82, its October 19th high. It remains below the 50-day moving average while the Relative Strength Index (RSI) has moved below 50.

It has also formed a bearish pennant chart pattern. Therefore, the stock will likely drop and retest the support at $19.50, its 50% retracement point. In the long term, the stock will likely bounce back and retest the resistance at $25.

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