This 9%-yielding energy stock just increased its dividend payout

As the dust settles on talk of yen carry trades and stock market crashes, oil prices are still above $75 a barrel. Meanwhile, market interest rates are trending lower in anticipation of a Federal Reserve rate cut. With OPEC+ extending production cuts into 2025, the oil bull case is intact. Still, you don’t necessarily have to be a raging oil bull to enjoy buying stocks that yield 9% Speed ​​Energy (NYSE: VTS)Here’s why.

Speed ​​Energy Dividend

After telling investors it would raise its quarterly rate dividend From $0.50 per share to $0.525 per share in the first quarter results, Vitesse Energy investors were pleased to receive the upgraded dividend on June 28. The $2.10 annualized dividend puts Vitesse on a dividend yield of 9.2% at the time of writing.

That’s an eye-catching yield, but history is full of high-yielding stocks that ended up disappointing investors. So how sustainable is Vitesse Energy’s dividend?

A sustainable dividend

As you might assume about an oil and gas company, Vitesse is not a stock to buy if you are worried about falling energy prices. However, it is an interesting stock to buy if you are optimistic about oilcomfortable with the price of oil at its current level, or can even tolerate some decline in the price.

The latter view is due to Vitesse’s policy of hedging its oil production. For the record, the company also produces gas but does not hedge it. To be clear, hedging is always an imperfect science and you rely somewhat on management’s discretionary ability to assess market conditions and hedging needs.

That said, for those concerned about the oil price, it’s worth noting that Vitesse has been increasing its open crude oil swaps (how it hedges against the price of oil) throughout the year. Swaps are derivative contracts that allow an asset (in this case, oil) to be exchanged at a fixed price for a set period of time. It’s not so important to get into the details of swaps as to understand that swaps mean that Vitesse will benefit financially if the price of oil falls below the agreed price.

By the end of 2023, Vitesse had hedged 40% of its “expected 2024 oil production, hedged at an average price of $78.95” per barrel. By the end of the year, that amounted to 1.68 million barrels of oil over the next six quarters. By the end of the first quarter, that number had grown to 2.45 million barrels over the next seven quarters. By the end of the second quarter, that number was 2.18 million barrels over the next six quarters.

Given that oil production in 2023 was 2.97 million barrels and 1.67 million in the first six months of 2024, it is clear that Vitesse has increased its oil production hedge – enough to appease those concerned about a potential drop in the price of oil.

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Smooth operational progress

The idea of ​​hedging is to isolate the risk (both upside and downside) related to management’s core competency and how it adds value to shareholders. Namely, the ability to grow…