Kimbell Royalty Partners LP (KRP) Valuation Update - Sept 15

[dan_s]

How does 10% dividend yield from a company that has more than 30% year-over-year production growth locked in for 2023 and 2024 sound?

I have updated my profile on Kimbell Royalty Partners and posted it to the EPG website. KRP is one of the four minerals companies in our High Yield Income Portfolio. Approximately 68% of their 2023 revenues are from the sale of crude oil.

This publicly traded partnership has elected to be taxed as a C-Corp., so shareholders will not be getting a K-1.

On September 13th KRP announced the closing of a significant acquisition that increased their production by ~25% (~4,800 Boepd) and gives them a lot more running room. They have close to 50 rigs drilling on their acreage and I'm forecasting more than 30% year-over-year production growth in 2024.

KRP pays out ~75% of their operating cash flow in the form of variable quarterly dividends that totaled $1.99 per share in 2022. I expect them to pay out close to $1.60 per share this year, for dividend yield over 10%. At current oil & gas prices, their dividends should move over $0.50/quarter in 2024. Plus, a significant percentage of this year's dividends will be treated as non-taxable return of capital.

They've only hedged about 15% of their 2H 2023 production, so they will benefit from the recent spike in oil prices.

At the time of this post KRP was trading for $15.52. I have increased my valuation by $1.50 to $23.00/share.

TipRanks: "In the last 3 months, 3 ranked analysts set 12-month price targets for KRP. The average price target among the analysts is $22.33. On August 21st (before the spike in oil prices), RBC Capital analyst Scott Hanold (rated 5 Stars by TipRanks) assumed coverage on Kimbell Royalty Partners LP (NYSE: KRP) with an Outperform rating and a price target of $23.00."