Share prices for Australia's top energy producers are slumping as the price of oil continues to slide. This is bad news for existing investors, but one upside is the chance to buy companies with growing dividends on the cheap. But which company is the best fit for dividend investors?
Falling oil, growing earnings?
Clearly the falling oil price will have a negative impact on earnings for many energy companies, so dividend hunters should pick companies with growing production or falling expenditure. Both of these factors should produce higher cash flows.
It also likely rules out Beach Energy Ltd (ASX: BPT) from the dividend race. The company's FY15 production guidance of up to 9.4 million barrels of oil equivalent (mmobe) is slightly down on FY14's 9.6mmobe, so a fall in oil price will likely hold back sales revenue.
Although capital expenditure is also expected to drop slightly, it could be a challenge to grow the current dividend of 4 cents per share (cps) which includes a 1cps special dividend.
| Company | Market Cap | Current share price | 3-month price change | Dividend (A$ cps) | Dividend Yield |
| Woodside Petroleum Limited (ASX: WPL) | $32.7 Billion | $39.94 | -3% | 233.64 | 5.8% |
| Santos Ltd (ASX: STO) | $13.23 Billion | $13.54 | -6% | 35 | 2.7% |
| Oil Search Limited (ASX: OSH) | $13 Billion | $8.59 | -9% | 4.4 | 0.51% |
| Beach Energy Ltd (ASX: BPT) | $1.78 Billion | $1.38 | -18% | 4 | 2.2% |
Source: Yahoo Finance, company releases
On the other hand both Santos Ltd (ASX: STO) and Oil Search Limited (ASX: OSH) are on track to see a big increase in production from the start-up of their PNG LNG joint venture.
Production for Oil Search grew 68% in the first half of FY14 and the company is anticipating full year production growth of up to 196%. The material increase in cash flows will help fund higher dividends going forward pushing up the current yield of just 0.51%.
Similarly, Santos is set to grow production rapidly through PNG LNG and the completion of its other key project: Queensland's GLNG in 2015. Santos has made no secret that the cash will drive increased distributions to shareholders which makes the company a top candidate for dividend investors.
Woodside Petroleum Limited (ASX: WPL) is also likely to grow revenues in the second half of this year as higher contract prices for Pluto LNG take effect. The dividend set in USD is also an attractive feature given the falling Aussie dollar.
At current share prices my pick of the bunch is Santos which is more suited to growth investors, while Woodside would likely appeal to more conservative investors.
