It's not often that you'd find yourself looking for dividends in the resources sector – never mind at the very top.
But that's the case with BHP Billiton Limited (ASX: BHP) and Woodside Petroleum Limited (ASX: BHP) currently, with both companies sporting lovely fully franked dividends.
BHP is a multi-commodity miner and energy producer with interests primarily in iron ore, coal, copper, nickel and petroleum products. At current prices of around $32, BHP is offering a trailing dividend yield of 4.4% fully franked – not far off Commonwealth Bank of Australia's (ASX: CBA) 4.6%. Oil and gas giant Woodside, on the other hand, touts a whopping 9% fully franked dividend yield at today's share price of $34.71, after paying shareholders more than $3.00 in dividends last financial year.
On face value, Woodside's dividend is clearly superior to not only BHP's, but many other dividend payers as well. But given the falls in oil prices from above US$100 a barrel in June last year to under US$60 per barrel currently, analysts don't expect Woodside to pay such a high dividend this financial year. In fact, Commsec has forecasts for a dividend of around $1.76, which would see Woodside yield around 5.1%.
BHP may have the lower dividend yield currently, but the giant miner is expected to increase its dividend in the 2015 financial year and yield around 4.9%.
But as most savvy investors would know, dividend yield is not everything, particularly when it comes to resources stocks, given their dependence on commodity prices – which are out of their control. It doesn't matter much if Woodside pays a 9% yield if the shares have also fallen 19% in the past six months – which is actually a fact.
Clearly investors need to consider the outlook for both companies before jumping in. Interestingly, BHP produces more oil and gas than Woodside, so a recovery in the oil price benefits BHP much more and vice versa. The expected spinoff of BHP's non-core assets into a new company, South32, could also release some value for its shareholders.
The one major issue Woodside has is that thanks to the falling oil price, is that at least two of its major LNG projects could be in doubt – given their huge startup costs – and perhaps forcing the company to cough up capital to invest elsewhere.
If I was forced to pick one, I'd take BHP for its diversity and ignore Woodside's whopping trailing dividend, although there are better options than both if you are interested.
