Woodside Petroleum Limited (ASX: WPL) is self-described as Australia’s largest independent oil and gas company with a global portfolio, recognised for its world-class capabilities – as an explorer, developer, producer and supplier of energy.
Since December 2008, Woodside Petroleum has seen declining sales from $8.63 to $5.94 per share in December 2017. Consequently, earnings per share have dropped from $3.02 to $1.54 in the same time period.
Conversely, Woodside Petroleum has increased its dividend from $1.32 per share in 2008 to $1.41 per share in 2017. As a result, in the last 10 years Woodside Petroleum has earnt $20 per share whilst paying out $15.59 as a fully franked dividend.
Irrespective of reducing sales, Woodside Petroleum has been able to effectively allocate retained profits. Woodside Petroleum has retained $3.41 per share whilst growing book value per share by $13.24.
With a market capital of $32.9 billion, Woodside Petroleum has a P/E ratio of 19 and a dividend yield of approximately 4.5%. This elevated price tag suggests the market is expecting growth from the company.
Oil and Gas are essential energy sources for the short to medium terms. However, investors must consider the growing viability of the renewable energy sector.
Epitomised by the growth of the electric car industry, renewable energy is becoming a more feasible alternative and a potential threat to Woodside Petroleum’s future.
Chief Executive Peter Coleman recently commented on the renewable energy sector, stating that gas is an essential component of a clean energy future. He later went on to say that “batteries pose no threat to gas – they don’t generate energy, they just store it.”
Investors may need to decide whether his comments are accurate or naive. If he’s correct, Woodside Petroleum should return earnings to shareholders for some time. If not, shareholders may need to look elsewhere to invest their money.
Personally, I love the book value growth on retained earnings. I think it highlights management quality. However, Peter Coleman’s words and my thoughts don’t align and I believe this presents too much of a risk moving forward for my liking.
Whilst I may be wrong, I’m happy to be wrong on the side lines.
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Motley Fool contributor Matt Breen has no position in any of the stocks mentioned. 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.