VOC Energy Stock: Outlook for Beaten-Down 14.9%-Yielder Robust
July 4, 2024
Reasons to Be Bullish on VOC Energy Trust
There’s an energy play I’m bullish on right now: VOC Energy stock.
Crude oil is down from its 2020 highs of $125.00 per barrel at around $84.00 per barrel. On the plus side, West Texas Intermediate has risen above $84.00 per barrel for the first time in two months as we enter the busy travel season. This could help boost crude oil prices to near $90.00 per barrel.
Near-term volatility can impact the short-term price of oil and gas prices, but it’s the long-term guidance that can really support both demand and prices.
World oil supply is expected to increase by 1.2 million barrels per day (mb/d) in 2024, with consumption growing an additional 1.1 mb/d in 2025. (Source: “Oil demand growing at a slower pace as post-Covid rebound runs its course,” International Energy Agency, April 12, 2024.)
Despite the push for renewable resources, the fact remains that oil is extremely important for the global economy, and alternatives cannot be easily substituted. As a result, even after so-called peak oil, which isn’t expected to occur until after 2045, the decline in global oil demand will not be steep. (Source: “A history of ‘unrealized’ peaks,” Organization of the Petroleum Exporting Countries, January 17, 2024.)
Of course, these long-term projections bode well for oil and gas exploration & development companies like VOC Energy Trust (NYSE:VOC).
VOC Energy Trust, which was formed by VOC Brazos Energy Partners, L.P., acquires and holds 80% of the net profits from the production and sale of interests in oil and natural gas properties in Kansas and Texas. (Source: “Form Q-10,” VOC Energy Trust, May 8, 2024.)
According to the most recent data, VOC Energy Trust’s underlying properties had interest in 452.5 net producing wells and 51,147.2 net acres. The company had proved reserves of approximately 2.9 million barrels of oil equivalent (MMBoe) attributable to the portion of the Kansas underlying properties; and approximately 5.4 MMBoe attributable to the Texas underlying properties.
Declares Distribution of $0.18 Per Unit
VOC Energy pays a high-yield quarterly dividend that is based on the net cash proceeds available for distribution. As a result, that number will change every month based on supply/demand and the price of oil and natural gas.
Now, thanks to its high cash flow throughout 2021 and 2022, VOC Energy Trust’s management was able to raise its high-yield dividend payout for six consecutive quarters, from $0.03 per share in January 2021 to $0.38 per unit in July 2023; that’s an increase of 1,166%.
Of course, this doesn’t mean its variable dividend always goes up. By the very fact that it provides a variable dividend means it will fluctuate. In the fourth quarter of 2023, VOC Energy stock paid out $0.225 per unit and $0.19 per unit in February 2024.
Most recently, in April, the company announced net profits of $4.22 million and net cash proceeds available for distribution of $3.03 million, or $0.18 per unit. This works out to an annual distribution of $0.72 per unit, for a current forward yield of 14.97%. (Source: “VOC Energy Trust Announces Quarterly Distribution,” VOC Energy Trust, April 18, 2024.)
During the quarter, the average price for oil was $71.25 per barrel (Bbl) and the average price for natural gas was $3.10 per thousand cubic feet (Mcf). During the second quarter, the prices of both oil and natural gas experienced periods of solid growth.
Because the distribution is based on net cash proceeds, the VOC Energy stock price will also fluctuate in a similar manner. It would be difficult to justify a rising share price if profits were down, and visa versa.
As you can see in the chart below, the company’s distribution and share price follow a similar trajectory.
There’s more to VOC Energy Trust’s distribution and share price performance than just the price of oil and gas and demand. There are some unknowns that will impact its profitability, too.
Other important factors include results of drilling operations, the ability of commodity purchasers to make payments, and actions taken by OPEC, to name a few.
This just means that investors who are risk-averse might not be all that keen on energy stocks with variable distributions. For contrarian investors though, an opportunity like VOC Energy stock has the potential to provide strong stock market gains and a frothy, high-yield distribution.
Chart courtesy of StockCharts.com
The Lowdown on VOC Energy Stock
VOC Energy stock is a great energy play with a large interest in the net proceeds from oil and natural gas properties in Kansas and Texas. The company continues to throw off a lot of cash, which allows it to provide VOC Energy stockholders with an ultra-high-yield dividend. That dividend payout could help investors wait out a potential rebound in its share price, which has shown that it can really move over short periods of time.
