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Woodside pays its dividend today – is its share price in the buy zone?

Woodside Petroleum Ltd (ASX: WPL) will pay its $1.27 dividend to investors today and has seen its share price climb 16% since the start of the year – but is it the best value in the Oil & Gas sector?

The case for Woodside

Woodside is Australia’s largest operator of oil and gas production with a market cap of $33.2 billion and recently reported full-year revenue of $5.24 billion and net profit after tax (NPAT) of $1.364 billion.

The company’s free cash flow rose 83% on 2017 figures to $1.524 billion and looks set to benefit from its SNE joint venture (JV) in Senegal’s first offshore oil development in the coming 6-12 months. Rising global oil prices and sustained east coast gas prices have boosted Woodside’s share price in the early part of 2019 and the technical environment remains supportive for the Oil & Gas sector as a whole.

Despite its status as a leader in the energy sector, Woodside’s share price has remained largely unchanged over the last 10 years and this is reflected in its 3.82% dividend yield, franked to 100% as it returns more capital to shareholders.

What are the alternatives?

Woodside is facing some stiff competition from the likes of Santos Limited (ASX: STO) and Beach Energy Ltd (ASX: BPT) within the S&P/ASX200 Index (ASX: XJO).

The Santos share price has soared 34% year-to-date while Beach has performed even better as its share price has rocketed 62% to be among the top gainers within the ASX.

Santos and Beach recently announced a JV with Key Petroleum Ltd (ASX: KEY) which will provide for more gas transportation and processing by the two gas giants from Key’s Tanbar Gas Project.

In its half-year results, Beach doubled its underlying net profit after tax (NPAT) and the company’s $2.09 valuation has been approaching its record high of $2.26 per share in recent weeks.

Weighing up the options

I think Oil & Gas sector exposure could be a good diversification move as global economic growth slows while oil and gas prices remain elevated due to supply shocks.

Woodside’s 3.82% dividend yield compares favourably to that of Santos (1.89%) and Beach (0.93%) although its $33.2 billion market cap also dwarfs its competitors’ $14.79 billion and $4.76 billion, respectively.

The oil and gas giant’s ~17x P/E ratio is higher than that of Beach (~12x) and comparable to Santos (~17x) with arguably lower growth prospects given its more mature operating profile. On balance, I’d say that Woodside doesn’t offer the value at its current $35.45 per share given other growth options on the market.

If you’re not interested in jumping into the Oil & Gas sector, these top growth shares could be in the buy zone for growth-seeking Fools.

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Motley Fool contributor Lachlan Hall 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.

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