David Einhorn started Greenlight Capital in 1996 with $1 million in seed capital. Since then, his fund has grown to manage over $5 billion in assets under management.
Einhorn is famous for seeking out undervalued companies and holding them for the long term. He first gained notoriety for his successful short-selling of Lehman Brothers stock prior to its collapse during the financial crisis of 2008.
Fast forward more than a decade and he’s still spotting deals, one of which is paying an extraordinary 10.6% dividend yield annually.
What Einhorn Stock Pays 10.6% Dividend Yield?
Civitas Resources, Inc. is a natural gas and oil exploration and production company. It operates in some of the most prolific natural gas and oil-producing regions of the country, including the Permian Basin, the Marcellus Shale, and the Eagle Ford Shale.
It’s easy to see what attracts Einhorn to it. The company has a perfect Piotroski Score of 9. It has a strong cash flow yield, and when we evaluated key measures like profitability, growth, and relative value it came out with flying colors.
Best of all, the company’s dividend yield is an astonishing 10.6%. Valuation is compelling too. By our reckoning, the fair value for the company sits at $104 per share, which would imply over 48% upside potential from current price levels.
What’s The Catch?
The old adage of if it seems too good to be true it probably is can be applied here.
What’s the catch?
Everything seems good. Even revenue growth over the past two years is stellar. In 2021, revenues grew year over year by 326% and in 2022 they soared again by 307% to $3.7 billion.
And perhaps in those figures is a clue of what investors need to be cautious of. While triple digit percentage revenue growth is impressive, that volatility can go the other way too. In 2015, revenues crashed lower by 47.6% year-over-year and, in 2016, they fell again by 33.3%. That kind of rollercoaster is prone to giving investors heart palpitations because it tends to correlate to share price volatility.
Is Civitas Stock a Buy?
While valuation, dividend yield and Piotroski Score favor Civitas, it’s not a buy without a good deal of risk, especially in the form of share price volatility as revenues fluctuate wildly.
Another noteworthy point is that while its return on equity (ROE) is respectable, it is lower than the industry average. Still, if you’re buying the company for the dividend, you are probably in good hands. The dividend is well covered, and the company is using its profits efficiently for reinvestment, as evidenced by its exceptional growth rate.
In short, there is a lot to like but perhaps, like David Einhorn, a small allocation is best in light of the risks. In his case, he has allocated 1.9% of his portfolio to Civitas, corresponding to a $26 million holding.