Are Woodside or CBA shares a better buy?

Here's how I'd compare these two major ASX blue chips.

| More on:
Two people comparing and analysing material.

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

Both Woodside Energy Group Ltd (ASX: WDS) and Commonwealth Bank of Australia (ASX: CBA) shares may appeal to investors who are looking for large, blue-chip shares.

As the name suggests, CBA is a bank – it's the largest company in Australia.

Woodside is a large energy business, focusing on LNG and oil, with projects around Australia, North America and Africa.

When selecting an individual company for my portfolio, I want it to outperform the overall ASX share market. The company should either be more defensive, provide a stronger dividend yield, or have the potential for greater capital gains.

While they're very different businesses, I'll compare both based on three factors in this article to decipher which stock is a better prospective buy for me.

Dividend yield

I'd guess that many Aussies who buy either of these businesses are doing so to take advantage of the passive income potential.

The CBA share price has shot up 41% this year, while the Woodside share price has fallen by 19%. This divergent performance has had a significant impact on the prospective dividend yields.

Using the forecast payouts on Commsec for the 2025 financial year, Woodside is projected to pay a grossed-up (including franking credits) dividend yield of 4.4% and owners of CBA shares are predicted to get a grossed-up dividend yield of 11.1%.

On this measure, Woodside shares seem much more appealing than the ASX bank share.

Earnings growth

Ideally, I want to see the businesses that I'm invested in generate more profit over the longer term.

If a business can grow profit, it can fund larger dividend payments and also possibly unlock capital growth.

CBA's net profit is normally driven by loan growth, its level of arrears/bad debts, and its net interest margin (NIM). However, in challenging operating conditions, with some struggling borrowers and heightened banking competition, profit growth is not easy for banks. Even so, in FY24, the business made cash earnings per share (EPS) of $5.88, and the independent forecast on Commsec suggests CBA could make EPS of $6.31 in FY25.

Woodside's profit is dictated by energy prices, which are hard to predict, and the production from its operating projects. The business could grow its profit in the future with growth projects it's working on in Australia and North America.

The ASX energy share's financial year finishes in December – the projection on Commsec suggests EPS could fall 13% in FY25 compared to the projection for FY24.

Clearly, CBA's profit is projected to go in a better direction. However, a rebound in energy prices could quickly change Woodside's profit outlook.

Earnings growth is not the only important element when it comes to the value we're getting – price also plays a factor.

Valuation

Looking at the price-earnings (P/E) ratio can tell investors how expensive it is. It's not necessarily helpful to compare different businesses from various industries, but it can be intriguing.

According to projections on Commsec, the Woodside share price is valued at 10x FY25's estimated earnings and the CBA share price is valued at 25x FY25's estimated earnings.

Based on these valuation numbers and the dividend yield, I think Woodside shares are more appealing than CBA shares.

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 Blue Chip Shares

A woman presenting company news to investors looks back at the camera and smiles.
Blue Chip Shares

Morgans says these ASX 200 blue chip shares are buys

Let's see which blue chips the broker is recommending to clients.

Read more »

Ecstatic woman looking at her phone outside with her fist pumped.
Blue Chip Shares

3 super strong ASX 200 blue chip shares to buy now

These blue chips have been given a big thumbs up by brokers.

Read more »

Broker looking at the share price on her laptop with green and red points in the background.
Blue Chip Shares

Buy these fantastic ASX shares for your SMSF

Looking to bolster your self-managed super fund? Then check out these buy-rated shares.

Read more »

A woman standing in a blue shirt smiles as she uses her mobile phone.
Blue Chip Shares

2 ASX blue-chip shares that I think are excellent long-term buys

I think these blue-chip shares are impressive players.

Read more »

A group of people in suits watch as a man puts his hand up to take the opportunity.
Blue Chip Shares

These top blue chip ASX 200 shares could rise 25% to 75%

Brokers are tipping these shares to deliver big returns over the next 12 months.

Read more »

A man thinks very carefully about his money and investments.
Blue Chip Shares

2 super ASX 200 blue chip shares to buy now

Brokers are saying good things about these stocks. Let's see why.

Read more »

Happy shareholders clap and smile as they listen to a company earnings report.
Blue Chip Shares

3 unstoppable ASX 200 shares to buy and hold for 10+ years

Analysts are tipping these shares to deliver strong returns. But why?

Read more »

A bland looking man in a brown suit opens his jacket to reveal a red and gold superhero dollar symbol on his chest.
Blue Chip Shares

If I were building a portfolio from scratch, I'd buy these 3 ASX 200 shares today

These quality shares could be great picks for investors building a portfolio.

Read more »