The Motley Fool

Santos Ltd (ASX:STO) announces dividend payout policy to counter oil prices

The challenge with investing in resources shares is the cyclical nature of supply and demand for the underlying commodity which affects its market price.

Take oil for example. The West Texas Intermediate (WTI or NYMEX) crude oil price per barrel has fluctuated from US$ 18 in December 1998 to US$ 147 in May 2008 to the current price of US$ 72 in June 2018.

This volatility in commodity prices affects the profitability of resource shares from one year to the other and consequently, the amount of dividends it can pay out to shareholders.

That is the challenge that Santos Ltd (ASX: STO) is trying to combat as it announced its new dividend policy today.

Santos announced that it would, “look to pay ordinary dividends that are sustainable through the oil price cycle and will target a range of 10% to 30% payout of free cash flow generated per annum”.

The announcement also states that Santos would consider, “additional returns to shareholders above the ordinary dividend when business conditions permit”.

Santos defines free cash flow as, “operating cash flow less investing cash flow (including all sustaining capital expenditure, exploration spend and interest payments)”.

What do others do?

So how does this new policy compare with other companies in the market? Below are two oil shares and their current dividend policies.

Company Dividend policy
Woodside Petroleum Limited (ASX: WPL) To pay a minimum 50% of underlying net profit after tax in dividends.

Woodside currently pay an 80% dividend payout ratio and targets maintaining this subject to market conditions.

Oil Search Limited (ASX: OSH) To pay 35-50% of core net profit after tax.

Oil Search’s current pay out ratio is approximately 48%.

Foolish takeaway

It appears that Santos has a more conservative dividend policy and is looking to manage dividend expectations given oil prices and its debt obligations.

Are you looking for your next dividend paying investment? Good news, this FREE REPORT identifies these ASX companies that are set to raise their dividends.

Breaking news: ASX companies set to raise dividends!

It's been a nail-biter of a reporting season here in the first half of 2018.

But the real action, in my opinion, is what companies are doing with dividends.

What does this mean for you? Well there is one stock I've found that could very well turn out to be THE best buy of 2018. And while there's no such thing as a 'sure thing' when it comes to investing - this ripper might come as close as I've ever seen.

Click here it's FREE!

Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can find Kevin on Twitter @KevinGandiya.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

One ASX Stock For An Estimated $US22 Billion Marijuana Market

A little-known ASX company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

And make no mistake – it is coming. To the tune of an estimated $US22 billion.

Cannabis legalisation is sweeping over North America, and full legalisation arrived in Canada in October 2018.

Here’s the best part: we think there’s one ASX stock that’s uniquely positioned to profit immensely from this explosive new industry… taking savvy investors along for what could be one heck of a ride.

AND, this is the first time The Motley Fool Australia has EVER put a BUY recommendation on a marijuana stock.

Simply click below to learn more on how you can profit from the coming cannabis boom.

Click here to find out more