2 reasons why I’d pick Woodside shares over Santos

A big dividend is one of the main reasons why I prefer Woodside.

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Key points

  • Woodside looks like a better pick than Santos in my opinion
  • It has a bigger dividend yield compared to Santos
  • Woodside is also investing billions into green energy

Woodside Energy Group Ltd (ASX: WDS) shares seem like a better pick compared to Santos Ltd (ASX: STO) in my opinion.

Both are ASX oil and gas share giants.

Woodside has a market capitalisation of $61.7 billion according to the ASX. Santos has a market capitalisation of $23.8 billion.

I’m not picking Woodside because of its size, but scale does come with some economic advantages that can help with profit margins. That was one of the reasons for the merger with the oil and gas division of BHP Group Ltd (ASX: BHP).

While I’m not the world’s biggest fan of oil and gas businesses, I think Woodside shares can make the better pick because of these two factors:


Woodside has typically paid investors a solid dividend, but thanks to the help of higher energy prices, Woodside is expected to pay a large dividend in the next couple of financial years.

First, let’s look at the expected dividends from Santos.

According to CMC Markets, Santos is expected to pay an annual dividend of 37.7 cents per share in 2022 and 40.5 cents per share in 2023. Using those projections (and a franking rate of 70% as per the last dividend paid by Santos), Santos is estimated to pay a grossed-up dividend yield of 6.8% for FY22 and 7.3% in FY23.

Let’s compare that to Woodside. The CMC Markets estimate for the 2022 dividend is $3.60 per share and $2.72 for 2023. That translates into a grossed-up dividend yield of 15.8% in FY22 and 12% in FY23 at the current Woodside share price.

While dividends aren’t everything, I think the bigger dividend yield from Woodside can help provide stronger returns.

$5 billion investment target

Woodside has a plan to invest billions in green energy. I think this is an important part of the company’s plan to future-proof itself.

There’s H2Perth, which has a flexible design for hydrogen or ammonia. The initial phase is targeting around 110,000 tonnes per annum of hydrogen production, including a 250MW electrolysis component. It has a future capacity of up to 550,000 tonnes per annum of hydrogen for export.

H2TAS is targeting 200,000 tonnes per annum of ammonia and a 300MW electrolysis. It has completed studies with potential customers for ammonia export to Japan.

H2OK is targeting around 33,000 tonnes per annum of liquid hydrogen including a 290MW electrolysis component.

Heliogen is another project, which is described as “breakthrough solar technology”. The initial phase is targeting 5MW. It’s a concentrated solar energy system with a power supply that could work nearly all day and all night. It’s targeting construction to begin in 2022. It’s working towards a joint marketing arrangement for technology in the US and Australia.

It’s also working on a large-scale solar farm with an initial phase targeting up to 100MW capacity. This will deliver electricity through the North West Interconnected System in WA. The maximum capacity will be up to 500MW.

Foolish takeaway

Woodside shares are paying investors more in the short-term and the company is starting to invest in green energy for the long-term as well. While I wouldn’t call it a great buy today, I think it could be a better long-term pick than Santos.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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