This Dividend Stock Has a Huge 7.5% Yield and Isn't as Risky as You Might Think

Core Viewpoint - Vitesse Energy offers a 7.5% yield, with a business model that mitigates risks associated with oil and gas price fluctuations, making it less risky than its dividend yield suggests [1][10]. Investment Case - The market often assigns high yields to stocks due to doubts about dividend sustainability, particularly if oil prices collapse. However, Vitesse can withstand price fluctuations between $70 and$30 per barrel [2][3]. - For income-seeking investors who believe oil prices will remain stable, Vitesse is considered an excellent investment opportunity [3]. Business Model - Vitesse does not own or operate assets but takes minority working interests in wells operated by leading oil and gas companies, focusing primarily on the Bakken region [4][5]. - The company has interests in 7,126 productive wells with an average working interest of 2.7%, and it has historically participated in 30%-55% of rigs drilling in the Bakken [5][6]. Risk Diversification - The strategy of investing in multiple wells reduces risk, as the operators handle the marketing, selling, and transporting of oil and gas, allowing Vitesse's management to focus on value creation [6]. Hedging Strategy - Vitesse employs a hedging strategy to mitigate exposure to oil price volatility, with 63% of its oil production hedged in the third quarter [7][8]. - The hedging strategy has shown to lower the realized price in 2022 but increased it in 2023 and continues to do so in 2024 [8]. - For 2025, 43% of expected oil production is hedged at $73.21 per barrel, providing downside protection against falling oil prices [9]. Conclusion on Investment - While Vitesse carries some risk, its diversified business model and effective hedging strategy reduce reliance on energy prices, making its 7.5% dividend yield attractive for investors comfortable with historical oil price ranges [10].