One question investors should ask themselves before buying Woodside shares

Woodside shares have a yield over 10% right now. Should investors be wary?

| More on:
Woman on her laptop thinking to herself.

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 shares have been a top performer on the ASX over the past year or two
  • High oil prices sent Woodside shares soaring last year, and have given the company a dividend yield of more than 10% today
  • But this dividend was built on high oil prices, which doesn't guarantee future payouts will be just as lucrative

On the surface, there is a lot for ASX investors to like about Woodside Energy Group Ltd (ASX: WDS) shares. Woodside is of course the ASX's largest energy share, with large exposure to the oil and gas industries.

It has been a great investment over the past 12 months, with the Woodside share price up a healthy 13.66%. And then there's the monstrous fully-franked dividend yield to consider as well.

Woodside shares currently have a trailing dividend yield of 10.49% on current pricing. That comes fully franked too, which represents a grossed-up yield of over 15%.

So should investors rush out and buy Woodside shares today to secure that massive 10% yield?

Well, that question doesn't exactly have a simple answer. Woodside is one of the most cyclical shares on the ASX 200, thanks to its total exposure to the oil and gas industries. Put simply, if oil and gas command a high price, Woodside rakes in the cash. But when oil and gas are depressed, times quickly get a lot tougher for this share.

To illustrate, let's dive a little deeper into Woodside's dividends.

So yes, this company has been a dividend hero over the past couple of years. That 10.53% yield is authentic, hailing from the final dividend worth $2.15 per share that Woodside shareholders bagged in April this year, as well as the $1.60 per share interim payout that investors received last year.

Have Woodside shares always been a 10% yielder?

But Woodside's dividends weren't always this high, far from it. The company did pay out $3.06 per share in dividends over 2022, the highest annual total in Woodside's history. But over 2021, investors received a far less impressive 56.3 cents per share. In the preceding years, it was far more common for investors to get an annual total of around $1 per share.

Thus, 2022 and 2023's dividends are arguably a bit of an anomaly, driven by the record prices for oil and gas that we've been seeing recently.

So the question would-be Woodside income investors have to ask today is what kind of dividends is Woodside going to pay out in the future?

Looking at the company's income history, it does look like the massive dividends that we have seen over 2022 and into 2023 can't be considered the norm. As we discussed last week, WTI crude has come down from the US$90 per barrel levels we saw last year to around US$70 per barrel today.

If oil stays at these levels or falls further, I wouldn't be betting on a repeat of 2022's income from Woodside. But then again, if oil starts to climb back up, Woodside shareholders could be in the box seat for even more large payouts.

Motley Fool contributor Sebastian Bowen 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

Worker inspecting oil and gas pipeline.
Energy Shares

Are Santos shares higher on quarterly update?

Let’s find out how the share price is moving following today’s announcement.

Read more »

Man with rocket wings which have flames coming out of them.
Energy Shares

Macquarie forecasts 61% upside for this ASX All Ords energy stock

Here's why the broker is so positive on the stock.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Energy Shares

Why this ASX uranium stock could rocket 100%+

Let's see why this speculative stock is being tipped to double in value by Bell Potter.

Read more »

A young man punches the air in delight as he reacts to great news on his mobile phone.
Energy Shares

Macquarie tips 23% upside for this ASX All Ords mining stock

Let's see why the broker thinks this stock could be a top buy.

Read more »

a group of three electricity workers stand smiling wearing hard hats and high visibility vests in front of an array of high voltage power equipment.
Energy Shares

Macquarie raises price target on Origin Energy shares

The broker just raised it's price target. Here's why.

Read more »

A smiling woman holds a Facebook like sign above her head.
Energy Shares

Bell Potter says this ASX 200 uranium stock is a top buy

Let's find out why the broker is feeling bullish on this stock.

Read more »

Worker on a laptop at an oil and gas pipeline.
Energy Shares

Boss Energy shares have surged 93% since April. Here's what Macquarie expects now

Boss Energy shares remain a favourite for ASX short sellers. Are they in a for a payday or headed for…

Read more »

A young man wearing glasses writes down his stock picks in his living room.
Energy Shares

3 reasons to buy this beaten down ASX 200 coal stock today

A leading expert forecasts a big potential rebound ahead for this quality ASX 200 coal stock.

Read more »