Investing is all about finding profits, and investors have long seen two main paths toward that goal. Growth stocks, equities that will give a return based mainly on share price appreciation, are one route.
The second route lies through dividend stocks. These are stocks that pay out a percentage of profits back to shareholders – a dividend, usually sent out quarterly. The payments vary widely, from less than 1% to more than 10%, but the average, among stocks listed on the S&P 500, is about 2%. Dividends are a nice addition for a patient investor, as they provide a steady income stream.
Where those routes overlap, we can find some special opportunities. We’re talking about high-yield dividend stocks that show classic growth patterns.
Using TipRanks database, we located three such stocks from the mineral sector. These are Buy-rated equities, according to the analyst community, with dividend yields coming in at 6%, or more. Not to mention each one has shown great momentum over the past year. Let’s take a closer look.
Kimbell Royalty Partners (KRP)
We’ll start with Kimbell Royalty Partners, a Texas-based company with extensive land holdings – and mineral rights – in its home state’s Permian Basin, in the Bakken shale, and in the Appalachian gas fields, among others. In all, the company’s holdings total over 16 million acres, and tap into the ‘lower 48’s’ richest energy production areas. Kimbell’s land investments are host to more than 122,000 gross wells – and because Kimbell acts as a landowner, collecting royalties, it does not bear the cost of operations or capital expenditures on those wells.
Turning to the firm’s current numbers, Kimbell showed a daily production run-rate in 4Q21 of 14,023 barrels of oil equivalent. This was generated from 61 active rigs on its properties. That production, in turn, generated over $52.2 million in revenues from oil, natural gas, and natural gas liquids – up 9.7% sequentially and a record revenue for the company. Kimbell attributed the top line gains to increased commodity prices. Net income in Q4 came to $30.7 million, approximately 4x higher than the 3Q21 number.
Kimbell has turned its high revenue and income numbers into a high dividend for shareholders. The company has a long-standing policy of returning 75% of available cash through distributions; for the most recent declaration, on January 28 for 1Q22, the dividend came to 37 cents per common share and yielded 8.5%.
With this performance, it’s no surprise that Kimbell’s stock is up 82% over the last 12 months.
TJ Schultz, a 5-star analyst and energy sector expert with RBC Capital, takes a bullish view of the mineral sector, and especially of Kimbell. He writes of the company: “As with all minerals, we think KRP will benefit from the bullish commodity backdrop and ability to avoid inflationary cost pressures, and we continue to like KRP’s diversified basin and commodity exposure, low decline rate, and proven ability to find acquisitions to support volumes and growth.”
These comments back up Schultz’s Outperform (i.e. Buy) rating, and his $23 price target indicates his confidence in a 33% upside for the year ahead. (To watch Schultz’s track record, click here)
That view is hardly an outlier. Kimbell has 5 stock reviews on record and they all agree that this is one to buy – making for a unanimous Strong Buy consensus rating. KRP shares are priced at $17.30 and their $20.20 average target suggests ~17% one-year upside potential. (See KRP stock forecast on TipRanks)
Viper Energy Partners (VNOM)
Next up, Viper Energy, is another Texas-based mineral company. Viper’s assets are focused on Texas’ Permian Basin, where the company holds over 730K acres in the formation that put the Texas oil industry back on the world map. Of that total, over 24K acres are ‘gross royalty acreage,’ from which Viper is deriving its income, and on those lands some 720 wells turned to production last year. Viper’s full-year production was 28,110 barrel of oil equivalent per day (boe/d) in 2021; backloaded to the final quarter of the year when it reached 31,359 boe/d.
The company’s assets also include a beneficial relationship with Diamondback Energy, which owns over 731K of Viper’s common shares, and some 58% of Viper’s total outstanding stock. Viper, in turn, is able to acquire acreage through Diamondback, and earn royalties from those holdings. As an example, Viper recently acquired over 2,300 acres of mineral interests from Swallowtail Royalties; approximately 62% of this acreage is operated by Diamondback.
Viper’s shares have gained an impressive 115% since this time last year, and a look at the revenues, earnings, and dividends will quickly explain why. This company has seen steady gains on all three of those key metrics – a combination sure to attract investors.
Viper saw $163.9 million at the top line in 4Q21, the sixth consecutive quarter of sequential gains; it saw net earnings of 36 cents per share, also up for the sixth quarter in a row; and finally, the company declared a common share dividend of 47 cents earlier this month – again, this was six quarters in a row of sequential increase.
The dividend is of particular interest. It annualizes to $1.88 per common share, and yields 6%. At its current rate, the dividend is up 24% from last quarter, and represents a 70% return of available cash to shareholders.
5-star analyst John Freeman, from Raymond James, is upbeat on Viper’s outlook, writing: “Viper had a solid 4Q and at the time announced a quarterly distribution of $0.47/unit, which was above consensus expectations by an impressive 24%… The quarterly distribution payout ratio was kept at 70%… The company is continuing their opportunistic buybacks, repurchasing ~$40 million in Q1 at the time of their 4Q earnings release. VNOM has a competitive advantage with their FANG relationship, this combined with top tier assets in the Permian provide investors with a compelling yield vehicle.”
In line with this bullish stance, Freeman rates VNOM shares an Outperform (i.e. Buy), with a $38 price target suggesting ~21% upside in the next 12 months. (To watch Freeman’s track record, click here)
Once again, we’re looking at a stock with a unanimous Strong Buy consensus rating; all 6 of the recent analyst reviews on VNOM are positive. The shares have an average price target of $35.67, implying ~13% upside from the current trading price of $31.51. (See VNOM stock forecast on TipRanks)
Black Stone Minerals (BSM)
Last up is Black Stone Minerals, a mineral company with an unbeatable footprint. This Houston-based energy company owns more than 20 million acres across 60 production basins in 40 states. These assets include land holdings in the Dakotas and the Appalachian Mountains, but are focused in the Gulf region, including Texas, Louisiana, Mississippi, and Alabama.
The importance – and value – of this niche can be seen in the company’s share growth over the past year. BSM is up 62% over the past 12 months.
In 4Q21, Black Stone’s mineral and royalty production rose 7% sequentially to reach 35.2 million boe/d. Total revenue hit $160.9 million for the quarter. The company’s distributable cash flow, a key metric as it funds the dividend, was $71.3 million.
That cash flow supported a dividend of 27 cents per share. This represented an 8% bump over the third quarter payment, and marked the fourth dividend increase in the past two years. Since the fourth quarter of 2020, Black Stone has increased the dividend by 54%. The current payment, which annualizes to $1.08, gives a robust yield of 8%.
Analyst Eduardo Seda, of investment firm Jones Research, notes that Black Stone has benefitted greatly from the current environment of rising energy prices. He writes, “As the global economic recovery continues, and demand for energy increases accordingly, BSM’s operating results continue to show improvement resulting from a rebound in commodity prices and increases in producer activity across its acreage…”
Looking ahead, Seda goes on to say, “We are adjusting our 2022-2023 EPU estimates primarily to reflect higher average realized crude oil and natural gas prices as commodity prices continued to strengthen in 4Q21 and so far in 1Q22…”
So it’s no surprise that this analyst rates BSM a Buy. His one-year price target on the stock, $16, implies an upside of 18%. (To watch Seda’s track record, click here)
All in all, BSM has a Moderate Buy consensus rating based on 2 Buys and Holds, each. The stock is selling for $13.45 and its $15.25 average price target indicates room for a one-year gain of ~13%. (See BSM stock forecast on TipRanks)
To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
