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.
Image source: Getty Images
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.
