Want $1,000 in dividend income? Here’s how much you need to invest in Vitesse Energy shares

While those looking to increase their passive income will consider various options, oil drilling is a frequently used strategy. From niche operators to oil supermajors, there is a wide range of options to consider. With a very high term dividend yield of 8.5%, Vitesse Energy (VTS 1.31%) is certainly an interesting consideration for income-focused investors.

Unlike its siblings who operate along the energy value chain, Vitesse holds non-operating interests in oil and natural gas wells. In its 10-K, for example, Vitesse Energy states that its “business plan is focused on building a diversified, low-leverage, free cash flow-generating business that can deliver significant dividends to our shareholders.”

Without wasting time, Vitesse rewards shareholders immediately after the spin-off

After being separated from the investment firm Jefferies Financial Group in January 2023, Vitesse Energy wasted no time in rewarding shareholders. It returned $58 million in dividends for 2023 — the result of quarterly distributions of $0.50 per share through 2023.

After declaring another dividend of $0.50 per share for the first quarter of 2024, Vitesse Energy increased its distribution by 5% and returned $0.525 per share to investors in the second and third quarters. Management has indicated no plans for future dividend increases, so if the payout remains constant, Vitesse Energy will return $2.10 per share in annualized dividends.

Therefore, to generate $1,000 in passive income in a year, investors would need to own 476.2 shares of Vitesse Energy.

A short history means a higher degree of risk

Vitesse may focus on generating free cash flow and returning it to shareholders, but investors shouldn’t assume that makes it a less risky investment. With little time operating on its own after the spin-off, Vitesse has not proven that it can achieve its goal.

VTS Free Cash Flow Per Share (Quarterly) from YCharts.

Over the past year, for example, it has failed to generate adequate free cash flow to fund its dividends. Therefore, investors looking for a conservative approach to generating strong passive income from the oilfield may want to look elsewhere.