Could the bountiful dividends from Woodside shares be at risk?

There is danger lurking in the future for Woodside, according to this expert.

| More on:
Gas and oil plant with a inspector in the background.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Woodside could suffer from impacts of a change to the petroleum resources rent tax
  • This could hurt the net profit and the potential future dividends, according to Citi
  • The Woodside share price could fall around 10%, according to the broker

Woodside Energy Group Ltd (ASX: WDS) shares could come under increasing pressure if the experts at broker outfit Citi are correct.

As an ASX energy share giant, the company is heavily affected by what energy prices are doing. But, there are also other risks to consider, such as the work on huge projects being on time and on budget. Governments can also change the operating landscape. With that in mind, investors need to be aware of what Citi thinks could happen.

Lower profit possible

According to reporting by The Australian, Citi has a price target of $30 on the company, which implies a possible fall of around 10%.

The problem, according to analyst James Bryne, is the potential change to the petroleum resources rent tax (PRRT).

As recently reported:

The PRRT allows concessions on expenses relating to exploring and developing gas fields. Under the current system, these can be carried forward and deducted as tax credits against future liabilities. But the Greens want the government to eliminate $284 billion of accumulated credits that enable gas companies to reduce their tax liability.

The suggestion is to remove all of these tax credits, which would mean gas companies start paying from 1 July, and for the government to apply a 10% royalty to all offshore projects subject to the tax.

Citi has suggested that change could mean that the market's expectations for Woodside's earnings per share (EPS) could reduce by 10% to 15%, hurting the underlying value of the business by 5% to 10%.

Despite that, Citi analyst Bryne increased his expectations for 2023 net profit after tax (NPAT) because of the recent strong result, though somewhat offset by the "moderated ramp-up profile for Mad Dog production".

Citi also increased the 2024 and 2025 net profit forecasts slightly thanks to "higher trading volumes".

Is this going to hurt Woodside dividends?

The Australian also reported that Citi believes a fall in the net profit could lead to a reduction of the potential dividends as well. This could also hurt the Woodside share price if investors aren't getting the dividend income they were expecting. Bryne said:

Over the coming years, we expect a theme of ASX Energy to be a redirection of capital budgets away from Australia, by both organic and inorganic means.

It seems understandable that if Woodside sticks to a certain dividend payout ratio in percentage terms, then a fall in profit would mean lower dividends as well.

However, not every broker is as pessimistic as Citi about the company's prospects. The broker JPMorgan recently raised its rating to neutral, with a price target of $33.85, which is slightly higher than where it is today.

Woodside share price snapshot

Over the past year, the Woodside share price has risen by around 10%.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Energy Shares

Miner looking at a tablet.
Energy Shares

Down 12% in a month! Is the Woodside share price finally back in bargain territory?

This stock has lost some investor energy. What now?

Read more »

sad looking petroleum worker standing next to oil drill
Energy Shares

Santos shares hit new lows in October. What next?

There's an interesting risk/reward calculus at play.

Read more »

a man dressed in a green superhero lycra outfit stands in a crouched pose with arms outstretched as if ready to spring into action with a blue sky and oil barrels lying in the background.
Technology Shares

The great Australian ASX Green Tech rally is starting now

The future could be bright – and green, experts say.

Read more »

A miner stands in front oh an excavator at a mine site
Broker Notes

Broker says buy the dip on ASX 200 uranium share with 69% upside

Shaw and Partners says this ASX uranium stock is trading at an attractive price point right now.

Read more »

Coal miner standing in a coal mine.
Energy Shares

This dividend stock is set to beat the ASX again and again

Depressed starting valuations may be of help.

Read more »

Miner looking at a tablet.
Energy Shares

Here's where this expert thinks the Pilbara Minerals share price is headed next

The ASX lithium share is facing profitability headwinds.

Read more »

Oil worker using a smartphone in front of an oil rig.
Energy Shares

Down 6% in October, what now for the Woodside share price?

After another month in the red, is there a light at the end of the tunnel for Woodside shares?

Read more »

Man restores power on a circuit breaker after electricity outage.
Energy Shares

Down 33%! Why this ASX 200 uranium stock is 'trading at a discount'

This ASX 200 uranium stock is materially undervalued by the market, according to a leading fund manager.

Read more »