Injecting $VNOM Into My Veins

100% upside from dividends alone? I'm Buying This Royalty Co.

Disclaimer: This article is for informational purposes only and should not be considered as financial advice. Always consult with a professional financial advisor before making any investment decisions.

Contents:

RULE SYMPOSIUM - GET YOUR TICKETS HERE

Investment Idea - VNOM 0.00%↑ Deep Dive Analysis & Valuation.

Welcome to the ROI Club.

A club obsessed with the art and science of return on investment.

Here I publish my equity research and explore hidden investment opportunities that I believe trade for less than they are really worth.

Continuing with my strong preference for asset light, inflation beneficiaries today’s focus is a company combining two of my favourite inflation beneficiaries: Oil and Royalties.

I’ll give you my take on why I expect this stock to deliver me handsome returns well into the future, with ZERO operating risk exposure while I get paid a fat dividend to wait.

Let’s dig in..

Investment Idea: Viper Energy VNOM 0.00%↑

Executive Summary:

• Viper Energy Inc. is an oil and gas royalty company that owns mineral and royalty interests in the Permian Basin​

• Holds ~34,500 net royalty acres located predominately in the Permian Basin; 68 rigs currently operating on Viper’s acreage​

•  Formerly known a limited partnership before converting to a corporation in November 2023.​

•  Viper Energy is a subsidiary of Diamondback Energy, Inc.​

Investment Thesis:

Viper’s Mineral and Royalty Interests Provide Significant Exposure to High Margin, Largely Undeveloped Assets with Zero Capital Requirements to Support its Free Cash Flow Profile. My base case, using historic FCF growth and conservative commodity price assumptions suggests a 100% upside from the dividend stream alone within a decade + a free call option on subsequent cashflows.

I have said repeatedly that I prefer these high margin, asset-light businesses with beneficial interests in an inflationary environment as they have proven outperformance against both the raw commodity and their producers. However due to the unique nature of oil being the key input commodity in our economy, the delta between royalty Co.s and producers is more narrow as seen below:

Horizon Kinetics show during periods of “normal” oil prices, the royalty Cos are still the way to go.

Here you can see why during oil price weakness and insane vol, they still strike me as the simplest bet for most.

If you want to see why I estimate the dividend alone of one such company is worth TWICE what it’s currently trading for + massive development upside I’m getting for free… sign up for a free trial and find out below

Valuation Deep Dive: VNOM 0.00%↑