Are you ready for the great LNG dividend boom?

Cash flows set to surge as huge energy projects near completion.

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After years of heavy investment and hundreds of billions of dollars being poured into in some of the biggest capital projects Australia has ever seen, the brakes are starting to be pumped to slow down further investment because of rising costs and slowing demand from powerhouse China.

Back in 2012, a report by Deloitte Access Economics noted just how big the boom had been. The average value of resource and infrastructure projects tracked by the company’s database jumped from $294 million in 2001 to $1.5 billion in 2011.

By value 55% of all tracked resource projects were LNG projects driven by the energy sector. This was comprised of projects like Origin Energy’s (ASX: ORG) $24.7 billion APLNG project, Santos(ASX: STO) US$18.5 billion Gladstone LNG project and Chevron’s (NYSE: CVX) US$52 billion Gorgon LNG development, plus a raft of others.

We are now well beyond that peak and several proposed LNG projects have been shelved or taken back to the drawing board due to high costs and the threat of cheaper LNG supplies being exported from the US. Woodside Petroleum (ASX: WPL) has pushed back plans for its $45 billion Browse LNG project in Western Australia as it considers lower cost options like a floating LNG plant.

But as the current projects approach completion – many due to start delivering their first LNG production from 2015 and 2016 – there are few confirmed big follow-up projects. The two key outcomes of this will be lower immediate capital expenditure obligations and significantly higher cash flows.

While some of this cash will be required for servicing or repaying debt, and some the commencement of other growth projects, there will likely be significant surplus cash left over.

This was the situation faced by Woodside after the completion of its Pluto LNG project in April last year. With the delay to the Browse Basin project, the company built up a sizable cash position which it elected to reduce by paying out a special dividend to shareholders and increasing the company’s pay out ratio to 80% of underlying earnings.

Santos would be one of the best candidates for a bigger dividend. The company currently pays a dividend of around 2%, but is due to benefit from the 13.5% stake it owns in the 90% completed PNG LNG project in addition to its 60% stake in Gladstone LNG. This will push up earnings per share in the next three years and dividends will likely follow.

Foolish takeaway

Australia’s huge LNG projects are streaking past their midway points with minimal delays. It won’t be long before they come online for full production, and with fewer new big growth projects in the pipeline, there will likely be significant cash flows available to be distributed to hungry investors.

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Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

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