Sitio Royalties Corp. (STR) Update - Mar 2

[dan_s]

STR closed on March 1 at $23.15. For the year 2023 dividends totaled $1.90 (yield of 8.2%).
I have updated my forecast/valuation model for Q4 results and fresh guidance for 2024. My current valuation of STR is $27.50.

UPDATED RETURN OF CAPITAL FRAMEWORK < This is good news.

On February 28, 2024, Sitio’s Board of Directors authorized a $200 million share repurchase program, which has no expiration date and is expected to commence in early March 2024

New return of capital framework creates additional flexibility for the Company to maximize long-term value for shareholders

The Company is revising its return of capital framework to include both cash dividends and share repurchases effective 1Q 2024, with no impact on 4Q 2023 distributions:

Minimum of 65% of Discretionary Cash Flow ("DCF"): Allocated to total return of capital (minimum cash dividend and mix of additional cash dividends and/or share repurchases)

Minimum of 35% of DCF: Allocated to cash dividends; Represents an approximate 5% yield based on 4Q 2023 Pro Forma DCF

Minimum of 30% of DCF: Allocated to additional cash dividends, share repurchases or a mix of both

Up to 35% of DCF: Allocated to balance sheet management and opportunistic cash acquisitions; no changes from previous return of capital framework

Chris Conoscenti, Chief Executive Officer of Sitio commented, "In the fourth quarter, we continued to advance our strategic efforts through active portfolio management and returns-focused capital allocation. We are already off to a great start in 2024 as we entered into an agreement to acquire over 13,000 NRAs in the DJ Basin for a compelling price that is accretive for our shareholders. As we reallocate capital from the recently closed divestiture of assets in the Appalachia and Anadarko Basins into these higher returning assets, we will have transformed our current DJ Basin position into a leading position with enhanced exposure to the Greater Wattenberg Field. Additionally, I'm excited to announce that the Board of Directors has authorized a $200 million share repurchase program as part of our new return of capital framework, which provides us with another method to enhance long-term shareholder value. This repurchase program is a reflection of the confidence we have in the fundamentals of our business. We still plan to allocate at least 65% of DCF to return of capital and utilize the remainder of DCF to pay down debt and make opportunistic cash acquisitions. Under our updated return of capital framework, we intend to allocate a minimum of 35% of DCF to cash dividends and at least 30% of DCF to additional cash dividends, share repurchases or a mix of both."