If your investment portfolio does not yet include oil and gas producer Santos Limited (ASX: STO), now is a great time to consider the company as a new addition. Exposure to the country's booming oil and gas industry, has the potential to produce strong returns over the next five years and Santos is positioned to lead the charge.
Here are three reasons I think Santos has a place in every portfolio today:
1. Santos' biggest growth is yet to come. Investors may have been disappointed by a flat quarterly update recently, but with the imminent completion of its two major projects, the big production growth is just around the corner.
The US$19 billion PNG LNG project, being completed with joint venture Oil Search Limited (ASX: OSH) has started up ahead of schedule, while the US$18.5 billion GLNG project in Queensland, is on track for first production in 2015.
2. Once the projects come online, Santos will be flooded with strong, steady, cash flows for years to come. Although the cash flows will be driven by the massive increases in production, the forecasts for rising long-term demand from Asia, means prices could also be set to rise.
This point separates Santos from resource companies like iron ore miner Fortescue Metals Group Limited (ASX: FMG), which face less certain demand and price fluctuations driven by worries over demand from China.
3. Combined, the higher cash flows will allow debt to be repaid and fund a growing flood of dividends for investors.
Similar to those initial investors who picked up Woodside Petroleum Limited (ASX: WPL), early Santos investors could be well rewarded with a progressively increasing dividend. In the last 12 months Woodside investors received a gross dividend yield of around 5% and share price growth of 11%. Not bad for one years' work.
Santos' fortunes are just beginning and the company is set to be a strong performer in the next few years.
