Why Santos and Origin are lagging the market

Energy companies are trailing the ASX, but could be set to fly.

a woman

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

Energy, the crucial component to our lives that keeps our tea hot and our beer cold, has been lagging other industries over the last year. While the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is up almost 20% for the last 12 months, some of the largest energy producers and retailers have lost value or are up only marginally.

Santos Limited (ASX: STO), for example is down about 10% which can be seen in the chart below; Origin Energy (ASX: ORG) is down 6%, while Beach Petroleum (ASX: BPT) and Woodside Petroleum (ASX: WPL) are up just 5% and 12% respectively.

chartSantos

 

 

 

 

 

 

Source: Yahoo Finance

Woodside in particular has had a strong year, with a full year of production from its Pluto LNG facility allowing the company to announce a special dividend for shareholders and progressing plans for the next stage of the company's Browse LNG production.

So why are they lagging? One reason could be uncertainty around carbon taxes on energy companies and the degree to which it will eventually impact the companies' bottom line. Origin chief executive Grant King has said the country's carbon tax policies put Australia at a competitive disadvantage and that the laws are way out of line with the rest of the world. Tony Abbott has called it a "toxic tax" and apparently declared a "blood oath" that he will remove the policy if elected in September.

A second uncertainty is around how the price for natural gas and LNG will perform over the long term and potential competition from US shale gas. This is possible, but over the last 12 months natural gas prices have increased by 20%, measured by Standard & Poor's GSCI Natural Gas Index.

A third contributor is likely the demand for higher dividend yields paid by companies in other industries. This is supported by the jump in Woodside's share price after announcing a special dividend in April before falling back again.

Foolish takeaway

There may be plenty of uncertainty around the industry at the moment, but the lagging price of energy companies is a great opportunity for patient investors.

Santos and Origin both have significant gas projects set to come online in the coming three years which will deliver big cash flows at prices locked in through long-term supply contracts. For its part, the carbon tax looks set to be a part of the energy industry's future in some form regardless of who is in power.

The Australian Financial Review says "good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit." Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »