FANG and VNOM profile updates - June 19
Posted: Mon Jun 19, 2023 8:14 am
We are sending out updated profiles on Diamondback Energy (FANG) and Viper Energy Partners LP (VNOM) today. They both have very strong balance sheets and lots of low-risk / high-return "running room" in the Permian Basin.
Diamondback will continue to pay out 75% of their free cash flow to shareholders, but their priorities are:
1. Pay a quarterly Base Dividend of $0.80/share each quarter.
2. Repurchase common stock. $4 billion has been allocated to stock buybacks. Enough to buyback over 12% of their outstanding shares.
3. Pay out the remainder as a Variable Dividend. For 2023, the variable dividend will be small because the BOD believes (and so do I) that their stock price is way below Fair Value. < My current valuation of $177/share compares to TipRanks' price target of $171.12/share.
Viper was created by and is controlled by FANG. It is a partnership that has elected to be taxed as a C-Corp., so their quarterly cash distributions are treated as regular dividends for tax purposes.
1. Viper will continue to pay variable dividends of ~60% of their free cash flow.
2. It is very important to understand Viper's relationship with Diamondback. It is Diamondback's very aggressive drilling program in the Permian Basin that supports Viper's double digit annual production growth. I expect Viper's production to increase ~12% year-over-year in 2023. Q2 production should be up ~1,300 Boepd over Q1 production.
3. Viper is appropriate for those of you who invest for #1 high yield and #2 steady growth. TipRanks' price target is $37.00.
I may be moving FANG back to the Sweet 16, since it is more of a "growth" company than a high yield play.
Diamondback will continue to pay out 75% of their free cash flow to shareholders, but their priorities are:
1. Pay a quarterly Base Dividend of $0.80/share each quarter.
2. Repurchase common stock. $4 billion has been allocated to stock buybacks. Enough to buyback over 12% of their outstanding shares.
3. Pay out the remainder as a Variable Dividend. For 2023, the variable dividend will be small because the BOD believes (and so do I) that their stock price is way below Fair Value. < My current valuation of $177/share compares to TipRanks' price target of $171.12/share.
Viper was created by and is controlled by FANG. It is a partnership that has elected to be taxed as a C-Corp., so their quarterly cash distributions are treated as regular dividends for tax purposes.
1. Viper will continue to pay variable dividends of ~60% of their free cash flow.
2. It is very important to understand Viper's relationship with Diamondback. It is Diamondback's very aggressive drilling program in the Permian Basin that supports Viper's double digit annual production growth. I expect Viper's production to increase ~12% year-over-year in 2023. Q2 production should be up ~1,300 Boepd over Q1 production.
3. Viper is appropriate for those of you who invest for #1 high yield and #2 steady growth. TipRanks' price target is $37.00.
I may be moving FANG back to the Sweet 16, since it is more of a "growth" company than a high yield play.